Improve Cost Control & Budgeting With Chart Of Accounts Re-Design
A company might redesign their chart of accounts for several reasons, driven by the need to improve financial reporting, streamline processes, and enhance decision-making.
So how can a redesign of your Chart of Accounts improve cost control and budgeting?
Ensure your Chart of Accounts is Fit for Your Needs Now
Companies change over time, they grow, diversify, merge, and divest, as do the markets within which they operate. These changes can occur over long periods of time, while the chart of accounts is usually only addressed at the point in which a major ERP system is implemented.
However, the long-term impact of business changes can mean that something that was fit for purpose at a point in time is no longer suitable. When this happens, it can become harder to get the information you need from your ERP system.
A Chart of Accounts Re-Design is a Strategic Move
A redesigned chart of accounts is a strategic move, an opportunity to re-align your Chart of Accounts with changed, or additional, business drivers. This service can lead to more accurate financial reporting, improved decision-making, enhanced efficiency, and better adaptability to changed, or changing, business needs.
The Reasons Behind a Chart of Accounts Re-Design
Some common reasons a company might need to embark on a chart of accounts redesign include:
Business Growth and Diversification:
As a company grows and diversifies, financial transactions can become more complex. The original CoA might not adequately represent new business segments, revenue streams, or cost centres. A company might also need to redesign its chart of accounts to accommodate different currencies, tax regulations, and reporting standards. Redesigning the chart of accounts allows the company to capture and report financial data more accurately for each division, subsidiary, or product line, as well as ensuring compliance and facilitation of cross-border financial management.
Improved Financial Reporting:
A well-structured chart of accounts can make financial statements more transparent and re-align the business with evolving accounting standards. This can enhance the quality of financial reports and compliance with regulatory requirements.
Improve Opportunities for Automation:
Modern ERP systems, such as JD Edwards or NetSuite, provide ample opportunity to automate accounting processes. A redesigned chart of accounts can make it easier to streamline processes, saving time, reducing errors, and lowering operational costs.
Cost Control and Analysis:
Re-designing your chart of accounts can provide more granular cost information. This helps in cost control, variance analysis, and budgeting. It enables the company to track and allocate costs with greater precision, making it easier to identify cost-saving opportunities.
Manage Mergers & Acquisitions;
When a company undergoes mergers or acquisitions, the chart of accounts of the acquired entities might not align with the parent company’s chart of accounts. A redesign is often necessary to integrate financial data and reporting.
Improve Cash Flow Management:
A redesigned chart of accounts can offer a better view of cash flow and liquidity. This is important for managing working capital, debt obligations, and investment decisions.
Improve Financial Reporting and Analysis Capability:
Over time, chart of accounts structures can become overly complex. Redesigning can simplify the structure by eliminating redundant accounts, combining similar accounts, or reorganizing hierarchies. A simplified chart of accounts can make financial reporting and analysis more manageable.
How Ndevr’s Chart of Accounts Re-Design Service Has Benefitted Others
Ndevr have delivered CoA re-design services to several JD Edwards and non-JDE customers.
Chart of Account Re-Design Examples:
Wholesale Distributor; Amidst changing market operating conditions there were impacts to the way our customer needed to manage their stock and inventory, while the business required different ways of reporting to reflect their changing market. The CoA redesign allowed better insight into their changing business drivers.
Manufacturer: After numerous restructures and acquisitions there were challenges with items not being coded properly. Ndevr provided a full revamp of their COA during their JD Edwards implementation.
Retail Consumer Services Provider; Their original chart of accounts was too high level and didn’t allow them to easily manage tax obligations without trawling through hundreds of lines on a spreadsheet manually. By redesigning their chart of accounts Ndevr provided fast and easy tax management.