Replies

1. 
   sharpologist | Jul 06, 2003 06:50pm | #1

   Paul,I use One-write plus for my sharpening business and am very happy with it.

               max

   Texas Sharpologist

1. 
   pauld | Jul 07, 2003 12:38am | #2

   Sharpologist,

   Thanks so much for your response. Bookkeeping software, while vital and interesting, isn't quite what I'm inquiring about.

   I am trying to find out what kinds of specific accounts are typically tracked by thriving woodworking businesses.

   For example: * What kinds of accounts are used to differentiate among operating expenses, cost of goods sold, and overhead expenses;* What level of detail is helpful when accounting for fixed assets; * What kinds of different revenue accounts are used (For example, I'm guessing, at minimum, that different accounts are maintained for consulting and design income versus product sales).

   I'm in the process of writing a chart of account, sample financial statements (income statement, balance sheet, sources and uses of cash, etc.), and other start-up documents to flesh-out a business plan.

   Thanks your you interest,Paul

1. 
   SparrowHawk | Jul 07, 2003 01:02pm | #3

   I don't know how much help it would be, but I own a computer business and have used Quickbooks to track things for a number of years. I would be happy to send you a list of my COA if you think would be of help. I should think there would be certain similarities between a computer shop and a woodworking endeavor.

   Ken

1. 
   pauld | Jul 07, 2003 07:52pm | #7

   Ken,

   I would appreciate that a great deal. The charts I used in the hotel industry, with several hundred accounts, are entirely too long and detailed, the financial modeling doesn't seem comparable to a custom woodworking shop, and they're designed for accrual-basis accounting.

   In addition to the typical bookkeeping entries, I'm curious to know how thriving woodworking ventures look at the expenses and profitability of individual projects.

   In hotels, for example, there is a "Uniform System of Accounts" that makes it possible to compare the financial results posted by each company apples-to-apples; competing businesses can compare their results to established benchmarks or trends in various revenue and expense categories. Are  there business or accounting standards employed among woodworking businesses that make it possible to compare results across companies?

   Thanks for your interest and help,Paul

2. 
   watkinsjd | Jul 07, 2003 05:11pm | #4

   Paul,

   I am a semi-retired CPA who only does tax preparation now.

   I think you will find that the vast majority of small businesses (individual proprietors) only suffer the pains of accounting so that they don't run afoul of the tax authorities.  A common term for this is compliance accounting. Most of them pay little attention to the statements their accountant prepares for them.  I think you will find most (not all for you detail minded Knotheads) woodworking shops fit this mold.  They mainly keep track of the cost of each job and compare that to their estimate so any "COA" will be job related.

   Are you doing this as a consultant or for yourself?

   John

1. 
   pauld | Jul 07, 2003 07:25pm | #5

   Dr Watson,

   Thanks for your response. I'm doing this for myself. I've decided to transition from  avocation to profession, and I don't want it to be a half-vast venture.

   Among the lessons I learned in my previous career, is that banks, leasing companies, vendors, investors, and government agencies tend to ascribe greater credibility to ventures that dot the i's and cross the t's, so to speak.

   I guess I'd rather analyze concrete numbers than rely entirely on the SWAG method. I find it easier to calculate (and improve) cash-flow forecasting, long-term profitability, ROI on capital investments, and estimated quarterly tax payments with periodic reports to analyze.

   I don't intend to while away the hours crunching numbers - that's absolutely not why decided to become a full-time woodworker. I guess I'm just more comfortable being as fully informed as posible.

   I appreciate your input,Paul

1. 
   DouglasABaker | Jul 07, 2003 07:39pm | #6

   While having your chart of accounts line up nicely with your analysis (ROI, etc) is nice, it is not a requirement.

   I would encourage you to separate your thinking into 2 different processes:

   1.  What is required for me to meet regulatory/statutory reporting requirements (ie. SEC filings, etc).

   2.  What type of information do I want to run my business on an ongoing basis?

   The answer to #1 will answer your Chart of Accounts question, while #2 is much more important from an accountability/operational standpoint.

   I'll give you an example - your "material cost" is comprised of multiple line items, correct?  Wood, Glue, etc.  More likely than not, it is also comprised of multiple types within each - Hickory, Cherry, etc/Yellow, Hide, etc.

   It would be useful to know, on an ongoing basis, what your material cost is by project, which would require reporting by wood species, glue type, etc.  Clearly, you would not want this level of detail in your ledger, but you would want it for reporting.  In almost all cases you will find that your ledger can do with a summarized level of detail relative to the information that you actually want to run the business with...

   This example may not be clear, so feel free to ask questions and I'll try to expound...

   Doug

2. 
   pauld | Jul 07, 2003 08:00pm | #8

   DM Woodworking,

   I agree with you entirely. I am not familiar with the business and accounting conventions endemic to woodworking businesses, so I decided to ask some very rudimentary questions rather than reinvent the wheel.

   It would be ideal to spend some time looking at tha day-to-day practices of a thriving woodworking business, but forums such as *Knots* can also be invaluable.

   I appreciate your reply,Paul

3. 
   pauld | Jul 08, 2003 03:38am | #9

   Doug,

   I failed to mention that I was a financial controller for businesses with revenue ranging from $20-50 million per year for about 25 years. I think it's terrific that you've posted such helpful information - many will benefit, including myself.

   With respect to the G/L accounts, are you aware of any practices or conventions peculiar to woodworking businesses that make specific revenue, expense or balance sheet accounts popular or necessary? Is there anything in the format of financial statements that's unique to woodworking concerns?

   Please pardon me if I don't reply for a few weeks - I'll be on holiday, sans PCs.

   All the best,Paul

   Edited 7/8/2003 11:11:09 AM ET by Paul D

4. 
   DouglasABaker | Jul 08, 2003 10:32pm | #10

   Actually, I only do woodworking on a fairly limited time basis - I'm also a controller for a $20-30M piece of a multi-billion company during the day.  That division, however, is presently charged with implementing an in-house system to align our reporting and our analysis.

   This is where my comments come from re: don't let your chart of accounts drive how you manage the business - they are fairly unrelated activities.  While it is obviously important that the numbers match, the level of detail required in your accounts is much different than that required to run your business.

   I guess my key point was that I think you were starting at the wrong end of the horse (so to speak) with your question - if you are worried about managing your business and making it efficient, etc, then what you really want these experienced folks to tell you is: What are the relevant metrics/data that you use to make sure you aren't wasting money?  The chart of accounts, while nice to know, is a fall-out of the above question, not vice-versa...

   Enjoy your vacation!!!

   Doug