Are You Working In The Dark?

Yesterday afternoon I sat down to reconcile my RocketGirl financial accounts for the month of January. This is the first month I’ve done this since moving my accounting to a new, cloud-based system called Xero.

Being the geek that I am, I’ve looked forward to this since I signed up for Xero in late December.

When I transitioned from QuickBooks, I decided not to simply transfer my chart of accounts to Xero “as is.” Instead, I took advantage of a great opportunity to rethink how I want to track my spending and decide which kinds of reports I’d like to use as I go forward.

Xero has a great little interface that allows you to review each transaction that’s been downloaded from your bank or credit card company and assign them, one by one, to the category of your choice.

One of the primary reasons I break my expenses out in the way that I do is so that I can easily see what’s happening and make adjustments as needed. To do that, you need to pay attention to your categories of spending.

Let’s take the category of marketing, for example. While some small businesses might lump all of their marketing expenses into one bucket, I break mine out in a pretty granular way so I can easily see what’s going on.

Here are some of the types of expenses that fall under the category of marketing:

– client gifts
– email marketing vendor
– newsletter editing
– stock photography for my newsletter
– contact management system
– RocketGirl-branded memory sticks
– business cards
– “snail mail” cards

I’m sure you can see that if I put all of these expenses together in one category it would take a rocket scientist (one level above a RocketGirl) to figure out where the money went, let alone how to make any cost savings.

I therefore created subcategories within marketing, like this:

E-newsletter

Editor
E-mail Marketing Vendor
Stock Photography

Collateral

Business Cards
“Snail Mail” cards

Gifts

Client Gifts

Promotional Gifts

Networking

Contact Management System
Events

Now I can easily see how and where I’m spending my marketing dollars, understand how things change from month to month, and make informed decisions about future changes that I may want to make.

A bonus to making categories small enough is that I guarantee you’ll find services that are automatically being deducted from your bank account that you’re not even using (call your bank and stop them!).

Marketing is just one example. I do similar breakouts for my other primary expense categories and for revenue types as well.

So remember, watching your bank account to approve each expense as it comes along is important, but that’s just scratching the surface of what your monthly books can tell you. Unless you have a well-organized chart of accounts, it’s as if you’re working in the dark!