A few weeks ago I reunited with a long-lost friend: Home Depot.
For years before we had kids, we were always working on a project. I worked on some flip houses, renovated my own house from scratch, and we became very familiar with each other.
When I walked back into the store a few weeks back, it was a different type of task: building a sandbox for my children.
I gathered the wood. I grabbed the landscape fabric. I grabbed the sand. And I needed to get some screws.
I have boxes and boxes of screws at home, but somehow you never have the exact ones you need. And on this day, I hadn’t really come prepared. I had a general idea of what I wanted, but I didn’t know the exact screw length, the exact coating, or what would be “right” for ground contact. It’s a sandbox, right? I thought I could wing it.
In reality, that was harder than it initially seemed.
I stood there staring from one box to the next, trying to make a good decision with incomplete information. When I finally found what felt like the right screw, I ran into the next problem: I only needed a handful. This was a small project. I didn’t need a box of 500.
Of course, the “perfect” screw came in a big box.
And the smaller packs were wrong lengths, bit, etc…
So I found myself having to make a less-than-optimal decision: do I pay significantly more for exactly what I need or do I try to make it work with something that's less than optimal? I did the only logical thing, which was to purchase both and tell myself I'd return the ones that I didn't need. Ultimately, I returned none.
Later that week, I was on a monthly review call with a client, and I realized: we face these exact types of decisions in our business daily. Too many options.
When talking about trying to get employees to fill out their credit card report, the owner told me: “Some of our mistakes are coming from the chart we give them… it has like 25 or 30 options.”
And if you’ve ever managed a credit card process (or expense coding, or categorizing transactions, or anything like it), you already know why that matters.
When you hand a busy person 25–30 categories and tell them to pick the right one, you don’t get “better data.”
You get human behavior.
Sometimes it’s picking a random one on the fly that’s nowhere close to right. Other times, it’s just choosing the same one over and over, no matter what. Others, it’s giving no detail of what was actually purchased.
Sometimes it’s a bit of laziness from the person, but often it’s really just that your system stinks.
You’ve made their job unnecessarily hard and set them up for failure.
You setup the “perfect” system the accountants want, but in reality it was working for accounting, but not the people doing the work. So, your team was trained to guess.
That’s why this owner’s solution is so practical: reduce the list to the handful of buckets people actually use, and if it doesn’t clearly fit, don’t force a fake decision, but have them describe the charge and let accounting handle it.
As he put it: if it’s not obviously one of those categories, “put a question mark,” and then leadership can review the exceptions on the bigger list.
In these two little decisions, this owner did something most miss: he shifted the process from “we need perfect coding” to “we need reliable inputs.”
And the benefits of this are more impactful than you’d think.
Once your inputs are reliable, everything downstream gets better.
So today, we’re going to lay out the benefits of creating a simpler chart of accounts and how to go about it.
BENEFITS OF A SIMPLER CHART OF ACCOUNTS
1) CLEAN INPUTS (LESS GUESSING)
The more complex a chart of accounts is, the more people (accounting included) guess when entering transactions. You can be extremely explicit about what you want people to enter, but the complexity means that as you get further from those decisions, where things go tends to drift.
By simplifying the chart of accounts, there are fewer places for people to make mistakes and less crossover for confusion.
Fewer buckets means people pick correctly more often.
2) FASTER CLOSE
When you have clean inputs, you can close the books faster. So much of a slow accounting close is a combination of:
- Slow entry of data into the accounting system
- Lots of data reviews to reclass or correct incorrect entries
By simplifying the chart of accounts, you can often speed up your slowest processes because they require less brain power and fewer people involved to complete them. Once the data is in, there are fewer mistakes requiring less data review and corrections.
The often unmissed element of this is that confusion or errors require communication between people and departments, which ultimately adds days to the process.
3) BETTER DECISION-MAKING
When you combine cleaner inputs and a quick close, you're able to look at better data closer to when it happened. At first, this impact might not seem huge other than the excitement you have to get to look at it more quickly.
But over time the ability to make quick and better decisions because of good data compounds. You stop making bad decisions and having to backtrack because of noise and you start to be able to recognize trends and increase the decision rounds in the business.
Going from making decisions based off data, every few months to monthly or even more frequently can result in 2-4x more decisions based on data per year.
4) EASIER DELEGATION
Simplicity in a chart of accounts makes it easier for both the operations and accounting team to delegate their work. You don't need a special code. You don't need a bunch of company knowledge. You just need the simplified chart of accounts.
5) BETTER ACCOUNTABILITY
When categories are clear, you can actually coach behavior (spend control, vendor discipline, vendor selection).
When there is complexity in your chart of accounts, mistakes can often just be a part of the process. When you simplify the chart of accounts, mistakes are more clearly associated with the people and allow you to provide more direct feedback.
6) BETTER AUTOMATION
In this world going more towards AI and automation, you may think this enables a more complex chart of accounts. But, what I've seen time and again is that as complexity increases, the number of conflicting rules or automations can result in more errors to clean.
So somewhat counter-intuitively, a clearer and more concise chart of accounts assists in doing rules-based coding (bank rules, card rules, vendor rules).
7) BETTER FORECASTING + BUDGETING
The hundred lines look like you're being thorough but in reality it can make your budgeting and forecasting a lot more difficult, which means you're less likely to keep it up.
Forecast lines match reality because actuals aren’t getting scattered across five different “kinda-similar” buckets.
You can budget individual lines granularly still, but on a day-to-day the broader view helps you get a feel much more quickly.
8) BETTER DASHBOARDS (LOW-DENSITY, DECISION-GRADE)
As you can tighten your forecasting, budgeting, and automation, the dashboards or the weekly or more frequent views can also be simplified. As I've taught time and again, we want to keep these to a minimal number of numbers that we can use to actually make decisions off of.
HOW-TO ORGANIZE YOUR CHART OF ACCOUNTS IN A DAY
This does not have to be a “redo the whole accounting system” initiative.
You’re just trying to solve one problem: when a transaction hits, the person closest to it can choose the right bucket quickly, consistently, and without guessing.
Here’s the approach I like.
1) START WITH CORE BUCKETS
I like to think in terms of account groups or categories. Think of the primary things that you want to track. The primary categories are always the same:
- Revenue
- Cost of Goods Sold
- Operating Expense
Within those primary, think about how the business runs and how you'd want to group things. So for Cost of Goods Sold, it could be:
- Materials
- Labor
- Freight
Obviously these are general, but you get the idea.
Within Operating Expenses, think about types of spend or departments. An example would look like:
- Administrative Payroll
- Administrative Expense
- Insurance
- Sales & Marketing Expense
- Facilities & Equipment
- Technology & Operations
- Travel & Entertainment
Within these I've listed here, there may be some crossover but again this is just an example.
Within those groupings you can have 3-10 accounts that go deeper in separating those expenses.
Behind that you can have full chart of accounts can be detailed behind the scenes if you need it.
2) PRUNE EXCESS ACCOUNTS
Now that you've thought through strategically what's most important and what you want to keep, think about what doesn't make sense.
What is a duplicate of something else?
What is old and no longer used?
What is unclear?
These decisions are going to be very personal but make sure that you include the team and even look at some transaction-level detail to see what makes sense.
You may make the decision of what to prune but not immediately make the account changes. Make sure there's some sort of notation or way that you're limiting future entries to those accounts until you've made the proper final decision to remove them.
3) ADD CLEAR DEFINITIONS (SO “SHORT” DOESN’T TURN INTO “VAGUE”)
Now that you've organized and reduced the number of counts, it's time to get clarity about what each account is for.
Most chart of accounts problems aren’t caused by people being careless.
They’re caused by two categories that sound different but feel interchangeable in the moment.
So if you simplify the buckets, you have to do one more thing: define them.
With AI this job has become a lot easier. You can plug transactions or documentation you have into AI and get it to spit out definitions. If you don't want a long document, one page of:
- One sentence explanation
- What goes here (2–3 examples)
- What does not go here (1–2 examples)
If you want a clean template for this, it’s the same idea I wrote about here.
4) PRUNE AFTER 60–90 DAYS
Once you’ve run it for a couple months, look back:
- which buckets are actually being used?
- which ones never get picked?
- which ones are still confusing?
Cut what isn’t used. Clarify what’s confusing. Keep the interface clean.
RULES FOR THE TEAM
Your broader list may not need to be accessible for the whole team.
It's important that you only give people the list of accounts that they'll actually need to use.
So whether it be credit cards or other expenses or items that they could have responsibilities for, give your team:
- A list of 3-5 accounts they will code to
- Specific rules about what you need when coding to each account (backup, people names, purchase description, etc)
- How to handle coding when they aren’t sure where to put it (no guessing—give them a path to push a transaction to your team to help)
Once they have these foundations, make sure that you're reviewing the data they push to you regularly (weekly), so that if they do have questions or make mistakes, you can address it quickly.
I've talked to many accounting departments that were frustrated because people wouldn't turn in receipts or respond to questions. But when we went into the process, they were doing it once a month or less. This gave the impression to the rest of the team that it wasn't that important so when they reached out, the team treated it as such.
When, instead, accounting regularly interacts with employees on these things, it improves their relationship and passively communicates that it’s important.
GIVE THEM LESS SCREWS
In the screw aisle, I didn’t need more options.
I needed a shorter decision path and a clearer definition of “the right choice for this job.”
It’s the same in your accounting system.
If you want one simple next step: pull the last 30 days of transactions by account (or even just your credit card transactions) and count how many categories were used.
If it’s more than ~15 for the people doing the coding, your interface is too cluttered. Simplify it, define it, and stop forcing guesses.
