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A Successful ERP Needs a Strong COA!

A Successful ERP Needs a Strong COA!

“Where’s my report on Gross Margin by Brand and trends over the past year!” asked the CEO.

The financial analyst replied, “Well, we don’t have a code to track Sales and COGS to calculate Gross Margin by Brand”.

What’s missing in this age of information?

Tracking information at the basic level allows for smart queries and relevant information about the business.

The Chart of Accounts (COA) is the key to business reporting and insights and yet is often the most overlooked element when embarking on a new Enterprise Resource Planning (ERP) system.

Most companies use the COA they inherited and then struggle with the process of defining their new Chart of Accounts (COA).

Don’t struggle. Get the COA working for you and use all the power of the ERP system.

Let’s start with the basics.

What is a COA Segment - a segment is a section of your chart of accounts structure that typically represents a segment of your business structure, such as a company, location, department, project, revenue or expense, or another attribute that can be reported on individually or in combination with other segments.

Some ERP allow for almost an unlimited number of segments and can have ‘intelligence’ associated to Dimensions which decreases the complexity when it comes to posting accounting transactions and increases the reporting flexibility.

Why are companies “DOA” when Defining their COA?

Building this key foundation to the ERP system can experience the following roadblocks:

  • Assuming the previous Chart of Accounts will work just fine.

  • Lack of knowledge regarding the relationship between a Chart of Accounts structure and the ability to report company financial results.

  • Limited focus on the company’s reporting possibilities by department, division, SKU, Brand and thus there are omissions to incorporate important segments.

Many CFOs and controllers have little experience with the power of a database that is governed by the Chart of Accounts. The structure can enable, generating directly through the system, the financial information management wants to see.

More often then not, they extract data from their ERP and restructure it in Excel to produce the requested monthly views that management requests instead of driving the system to do the work.

How do you know if you have a solid COA?

Here is one simple question to know whether your company has an adequate Chart of Accounts.

  • Can your company create these types of reports directly through your ERP financial accounting solution?

  • Financial Statements (Income and Balance Sheet) by Company

  • Profit and Loss Statements by Company, Division, or Product Group

  • Sales and Gross Margin by Customer, Brand, Product Group, or SKU

  • Comparative Period over Period Statements

If your is answer NO – take a look at Your Checklist of COA Success below and then give us a call and we’ll help you through the process.

The COA is the foundation of your ERP and management reporting.It’s always important to start with a strong foundation!

Your Checklist for COA Success

Power in the segments

It’s important that the use of the COA segments are well understood by whomever is assisting the systems implementer with the build of a COA.

If the CFO delegates to the Controller who then delegates below themselves to architect a COA, poor results are probable.

Take ownership of the reporting and build a COA structure that give you flexibility.

Vision for Future Enterprise Growth

A limited segment COA is a major factor that causes many companies to ‘box’ themselves into limited reporting.

Visualizing the growth of the company and the use of information to achieve that growth inspires a well thought-through COA. We’ve seen companies who re-implement their general ledger (and all other sub-ledger modules as a result) when they realize that the COA is too narrowly cast.

Here are some pointers for flexibility:

  • Segments are Your Friends: Include a segment for company, cost center, department, account, project, and one ‘future’ segment. It’s not uncommon to have between five to seven segments in your COA.

  • Financial Reporting is Your Driver: Build your COA account hierarchy with financial reporting in mind. Your COA account hierarchy should reflect your Balance Sheet and Income Statement line items.

  • Size Matters: Your Account segment should include four to five digits. Incorporate some logic into the numbering scheme and allow room for expansion. Also reserve account values ending in ‘0’ as parent (non-postable) accounts.

1100 – Cash in Bank

1111 – Bank Operating Checking Account

1121 – Bank Money Market

Right People / Enough Time

Assign this important task to the right person – the CFO and the Controller are the right people.

Take your time. Don’t rush. This is the spine of the entire system and needs the thought leadership. Expensive re-dos are typically directly correlated to this important step being driven without the direct input of the accounting leadership.

Many organizations claim they ‘are too busy’ to dedicate the time and resources to discussing and building a robust COA that fits the needs of current and future needs of the enterprise. It’s commonly left to the systems integrator to make a best-practice recommendation. Just say No. Take ownership of of your COA and the keys to flexible reporting.

COA is your pathway to success.

Next up, Dashboards!

The dashboard is directly related to the information driven through the system as organized by the COA.

RJMC is expert in COA design. Call us at the beginning of your project and we will give you the best pathway to success.


Rubenstein / Justman Management Consultants (RJMC) assists mid-market companies to evaluate, select, and implement ERP solutions. Extraordinary support from skilled and experienced consultants. To find out if your business is ready for a change, give us a call at 310-445-5300 - we know ERP.

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