How to Create a Startup Chart of Accounts

Regardless of what accounting system or software your startup uses, its core will be the chart of accounts (COA). A startup chart of accounts will differ from company to company, but the common thread is that it is a system of your accounting records that aligns with your financial structure and offers the level of detail required in your financial statements. More specifically, it’s an indexed list of accounts that shows classifications and sub-classifications impacted by your financial transactions. Once you’ve assigned your transactions to an account (and its corresponding number), you can then set up your general ledger and use double-entry bookkeeping to ensure that your books are balanced.

In other words, your startup chart of accounts is an accounting system,- designed specifically for your company,- that helps you track and report your income and expenses. I would, of course, recommend working with an accountant, but,- even if you outsource this task, it’s still important for you to understand how to  set up a chart of accounts to best serve your business needs. Here’s how:

Set up your categories.

1. Assets

Look to the future.

Your business will grow and change, so, when setting up your accounts, don’t just think about your current accounts. Consider you may need in the future. For example, you may not have any employees, but you likely will build out your staff at some point. Take this into account when creating your charts.

Create a numbering system.

Typically charts of accounts are established as a four-digit numbering system. Each category of accounts will share the initial digits, and then the following digits will be used for sub-categories. This gives you room to grow and add new accounts as needed. For example, your assets category could be assigned to 1000. Each asset in this account would then be assigned in sequence: 1000, 1010, 1020, etc.

Delete irrelevant accounts.

Of course, you’ll want to pick and choose the accounts that are relevant to your startup,- and leave out the rest. For example, if your startup is a service-oriented Company, then you won’t have any product inventory to account for within your chart of accounts. However, you will most likely have other resources that need to be tracked. The chart of accounts for a software company will also look radically different from that of lifestyle-oriented businesses. This is where you have to personalize your chart of accounts.

Add more granularity.

Depending on your business, it may make sense to offer a greater level of detail in some categories. For example, for companies with multiple expenses for legal or professional services, you may want to break these services out into separate accounts.

Fine-tune your chart of accounts.

As with any financial document or plan, creating a chart of accounts isn’t enough—you must update it as needed. As your startup grows, you may find that it makes sense to add or delete particular accounts. Keep working with it until it is aligned with your financial plan.

There’s no one perfect startup chart of accounts. You just want to tweak your accounting system over time until you have what you need: the necessary information to make solid financial decisions for your startup.

About Early Growth:

Early Growth is the largest national provider of outsourced CFO & accounting services in the venture capital space. For over 10 years, Early Growth has been providing finance & accounting, tax, equity management, and fund accounting services to startups at all stages. Early Growth is a strategic partner handling your finances so you can focus on your business, customers, and team.