In a podcast interview for The Successful Bookkeeper, Heather Smith, author of Xero for Dummies, elaborated on the ways in which technology can make your life and work better. What Heather discovered, as a remote worker way before remote work was the norm, was that using the latest technology can be massively beneficial, both to bookkeepers and their clients. Especially when it comes to making sense of a business's chart of accounts.

In the podcast, Heather took the popular term "data-driven decisions" and turned it on its head, saying instead, "I like data-informed decisions". Data-informed decisions incorporate an element of humanity that's missing from the popular alternative. Put another way: rather than the data propelling a business's decisions, it is a combination of data, interpretation, and gut instinct that leads to business decisions. Yes, there is still a role for gut instinct and intuition even in the world of big data.

A data-driven approach doesn't take your personal experience or insight into account, and it can sometimes miss the big picture. On the other hand, a data-informed approach takes into consideration your unique experience, user research, and other information to make decisions. In this approach, data is just one of the many variables which inform your choices moving forward.

A data-driven approach can be very helpful when it comes to eradicating personal biases from the decision-making process and giving you a meaningful reason to reject stakeholders' agendas. Moreover, data-driven decision making can lead you to be more proactive because data enables you to identify current trends and predict future issues. As Tim Stobierski from Harvard Business School stresses:

"While intuition can provide a hunch or spark that starts you down a particular path, it's through data that you verify, understand, and quantify. According to a survey of more than 1,000 senior executives conducted by PwC, highly data-driven organizations are three times more likely to report significant improvements in decision-making compared to those who rely less on data."

Among the benefits of a data-driven approach, Stobierski lists:

However, there is something missing from this approach, something AI cannot do like people can. It is human beings who have to sit down and interpret information based off both the data and their past experience. Without these unique, human insights, there may be something that is overlooked. This is where the advisory element of an accountant or bookkeeper's job comes in.

According to an article by Kirsty Sharman for CMS Wire:

"The most successful companies use both data-driven and data informed decision-making. Relying too much on data without taking the human factor into account can be one of the most dangerous things for a company to do..."

This is because, purely data-driven decisions can:

To find a balance between the two approaches, Sharman suggests that businesses aggregate and democratize data by making sure that everyone within the business has access to your business's data and is kept up to date with it regularly. She also suggests collecting qualitative data as part of your research strategy, and creating a process for continuous testing.

However you look at it, the data remains vital to making decisions for your business. And one of the most important places to start when it comes to financial decisions is your chart of accounts.

The chart of accounts (COA) can produce some very useful information but only if you know what exactly it is that you are looking at. When looking at a business's COA, you need to ask yourself:

If you take a look at the services or products being marketed by the business, you can then divide your COA up accordingly. You can then see what looks like the most profitable area in which to spend your time and what the bulk of your expenses are tied to.

In the words of John L Daly, MBA, CPA, CMA, CPIM in his article, "Get the Most from Your Chart of Accounts":

"Many accountants have never thought philosophically about their organization’s chart of accounts. They work with the limits that their existing chart of accounts imposes on them, rather than redesign it to meet the current and future needs of the organization. I will offer you a compelling reason for change. Almost universally, troubled companies have a poorly structured chart of accounts that inhibits good financial management."

Having a well organized COA is key to identifying and correcting errors in the general ledger. Simply following the traditional template may not be enough. You really need to consider your business's specific needs.

Certain accounting softwares have a default COA setup, but these are usually editable or else softwares may allow you to import your own. To make something easily understandable, it helps to break it down into bite-sized chunks.

Some important aspects to include in your COA are:

By separating out expenditures, revenue, assets, and deconstruct these further. For instance, for a small entity, you might want to consider the following sub-accounts within assets:

Liabilities could include sub-accounts such as:

It can also help to divide your COA according to department, so the sales department and engineering department may be charted separately.

Understanding the data in front of you is one thing, but making it clear to clients is another, especially if your clients are not the most financially-minded. The key is not to overwhelm them. Once again, it can be useful to find one crucial piece of information and zero in on that.

For the sake of clarity, visualizations can be immensely helpful. We are visual creatures living in a world of images after all. Most people will find a clear, color-coded graph preferable to pages and pages of text and numbers. Graphs can improve cognitive reasoning and strengthen the outcomes of evaluations, serving as an invaluable business tool.

When it comes to assessing business performance, visualization allows for better reporting and tracking of key targets. Graphs are especially useful when it comes to detecting patterns in data than may not be clear otherwise.

Syft's Income vs. Expenses graph under Profitability is a very popular graph as it creates a clear visual representation of an entity's income and expenses over a 12 month period. The graph is colored for ease of comprehension and also includes AI-generated insights about the total income for the period shown, the average income per month, the best performing, and worst performing months. Ditto when it comes to expenses. The insights also let you know what the profit for the period was, along with the average profit per month, and the best performing month in terms of profit. You can also use this graph to identify trends and seasonality.

When it comes down to it, businesses who use data to inform their decisions tend to outperform businesses who don't. But it isn't all about the numbers. Without the help of an experienced accountant or bookkeeper who knows how to interpret the data and work with clear, colorful visualizations, businesses often falter. Data-informed decisions combine financial know-how and considered interpretation with the numbers in the chart of accounts to provide invaluable, actionable insights. The human touch is still very important even in a time of pervasive digitization.