FINANCIAL PLANNING

Today I remembered a quote of Benjamin Franklin, which has much meaning in few words: "Failing to plan is planning to fail". This has been a principle for me, which has proven its validity in different situations in my life and in business, and how it is important at the financial management. So I will share with you how to create a good "Chart of Accounts" for car rentals to help you on financial management.

When we set a goal and outline a plan to reach them, everything becomes easier, reduces anxiety of almost all people involved. It is possible because having a plan, everyone will share the same destiny, how to get there, tasks, resources required, milestones along the way, and time required to reach each of them until the target.

Also, a good planning should address: processes, trainings, risks and costs. Processes will outline "what", "who", "how", "where", "when" to do, the methods to apply, resources that will be consumed, the process' input and output. Trainings will empower the Human Resources on the processes, methods, technologies and skills. Risks are like stones in the path, so we must find out what are the potential risks, then design some managerial processes to mitigate them and guarantee that all tasks will be performed as designed, scheduled and budgeted. Costs are normally consequence of resources involved and consumed by the operational and managerial processes, and the time expended on each of them. However, whatever planning is perfect and accurate, unforeseen and / or improvement opportunities will surely arise, then the plan must be revised.

All above are some of the reasons to use the PDCA cycle, a method widely used for planning, control and improvement of processes in a company. It was created by W. A. Shewhart in the 20s and is known also as "Deming Cycle" due to the disclosure by professor William E. Deming, who in the 50s was considered, together with Juran, the pioneers of the quality movement, and responsible for the Japanese industrial miracle. PDCA stands for “Plan”, “Do”, “Check” and “Act”:

• Plan: is the first stage of the PDCA and starts with a plan, based on the guidelines and rules of the company, starting with setting the goals, the path to reach them, and the definition of the method to be used. A well-designed plan avoids failures and losses in subsequent stages of the cycle.
• Do: is the implementation of the plan, which consists in training the actors/employees involved in the method to be applied. It should also define and collect the data for later analysis.
• Check: includes the analysis and verification of results and data collected, but may also occur during the implementation (Do), to verify if the work is being carried out as planned. During this stage can also be detected errors or failures, which should be analyzed in the next stage.
• Act: this is the last phase of the PDCA cycle, where corrective actions are performed to locate and investigate the causes of failures, or deviations in the processes, found in the previous stage, and working to eliminate them. So the cycle returns to the first stage again.

If we want a financial management effective and reliable, the PDCA cycle is recommendable, and must start with the "Chart of Accounts", which must cover the same level of details that we want to manage and control in our car rental business, and a way to accomplish this is to begin defining the accounting's classes, as below:

• 1 - Asset
• 2 - Liability
• 3 - Owner's Equity
• 4 - Revenue 
• 5 - Expense 
• 6 - (Gain)
• 7 - (Loss)

Subdividing the classes above into sub-classes, e.g.:

• 1 - Asset
• 10 - Cash
• 11 - Receivable in long term 
• 12 - Inter-office receivable
• 13 - Permanent
• 2 - Liability
• 20 - Cash
• 21 - Due to long term
• 22 - Due on revenue
• 23 - Cleaning account
• 3 - Owner's Equity
• 30 - Owner's equity
• 4 - Revenue
• 40 - Miscellaneous or other revenue
• 41 - By time
• 42 - By Km/Mile
• 43 - Insurance
• 44 - Coverage
• 45 - Fixed assets
• 46 - Courtesy or discount
• 47 - Additional charge
• 48 - Promotion
• 49 - Optional item and service
• 5 - Expense
• 50 - Miscellaneous or other expense
• 51 - Reimbursement
• 52 - Loss by charge less
• 53 - Discount on credit card
• 54 - Commission
• 55 - Repair
• 56 - Preventive maintenance
• 59 - Uncollectible
• 6 - (Gain)
• 60 - Miscellaneous and other gain
• 61 - Vehicle rental
• 61 - Lease
• 62 - Vehicle sales
• 63 - Vehicle rental of third parties
• 64 - Gain on rental cars by third parties
• 69 - Gain with financial investment
• 7 - (Loss)
• 70 - Miscellaneous and other loss
• 71 - Vehicle rental
• 72 - Lease
• 73 - Vehicle sales
• 74 - Vehicle rental of third parties
• 75 - Loss on rental car by third parties
• 79 - Loss with financial investment

After we have the classes and sub-classes defined, it is time to work on the accounts, those that we will manage and control in our car rental business. However, here, we will only work on the classes and sub-classes outlined below:

• 1 - Asset
• 10 - Cash
• 1010 - Cash
• 1011 - Petty Cash
• (... 1019)
• 1120 - Bank
• 1121 - Bank name #1
• 1122 - Bank name #2
• (... 1149)
• 1050 - Credit card
• 1051 - Visa
• 1052 - Mastercard
• 1053 - American Express
• 1054 - Dinners 
• 1055 - Discovery
• (... 1068)
• 1069 - Own credit card
• 1070 - Account Receivable
• 1071 - Billed to the customer's credit
• 1072 - Postdated check
• 1073 - Bank order
•  (... 1099)
• 11 - Receivable in long term
• 1100 - Receivable in long term
• (... 1199)
• 12 - Inter-office receivable
• 1200 - Inter-office receivable
• (... 1299)
• 2 - Liability
• 20 - Cash
• 2000 - Cash
• (... 2009)
• 2010 - Loan
• (... 2099)
• 21 - Due to long term
• 2100 - Account Payable
• (... 2199)
• 22 - Due on revenue
• 2200 - Miscellaneous and other taxes
• 2201 - VAT
• 2202 - GST
• (... 2219)
• 2220 - Vehicle licensing
• (... 2229)
• 2230 - Other charges
• 23 - Clearing account
• 2300 - Clearing account
• (... 2309)
• 2310 - Customer deposit
• (... 2399)
• 4 - Revenue
• 40 - Miscellaneous or other revenue
• 4000 - Miscellaneous or other revenue
• (... 4099)
• 41 - By time
• 4100 - Revenue by time
• (... 4199)
• 42 - By Km/Mile
• 4200 - Revenue by km/mile
• (... 4299)
• 43 - Insurance
• 4300 - Other rental insurance
• 4301 - LDW (Loss Damage Waiver)
• 4302 - CDW (Collision Damage Waiver)
• (... 4399)
• 44 - Coverage
• 4400 - Other rental coverage
• 4401 - SLI/LIS (Liability Insurance Supplement)
• 4402 - PAI (Personal Accident Insurance)
• 4403 - PEC (Personal Effect Coverage)
• (... 4499)
• 45 - Fixed assets
• 4500 - Other rental fixed asset
• 4501 - GPS
• 4502 - Baby seat - up to 3 years old
• 4503 - Baby seat -  greater than 3 years old
• 4504 - Cellular phone
• 4505 - Smartphone
• 4506 - Umbrella
• 4507 - Trailer
• (... 4599)
• 46 - Courtesy or discount
• 4600 - Courtesy
• 4601 - Discount
• (... 4699)
• 47 - Additional charge
• 4700 - Additional charge
• 4701 - Airport tax
• 4702 - Additional driver
• 4703 - Refueling
• 4704 - DROP OFF
• 4705 - Underage
• 4706 - Surcharge
• (... 4749)
• 4750 - Damage
• 4751 - Repair
• (... 4799)
• 48 - Promotion
• 4800 - Promotion
• 4801 - Parking
• 4802 - Movie ticket
• 4803 - Theater ticket
• 4804 - Park ticket
• 4805 - Restaurant discount
• (... 4899)
• 49 - Optional item and service
• 4900 - Optional item and service
• 4901 - Delivery vehicle
• 4902 - Collect vehicle
• 4903 - Daily of chauffeur
• 4904 - Daily of chauffeur bilingual
• 4905 - Hourly of chauffeur
• 4906 - Hourly of chauffeur bilingual
• 4907 - Daily tour guide
• 4908 - Daily tour guide bilingual
• 4909 - Hourly tour guide
• 4910 - Hourly tour guide bilingual
• 4911 - FPO (Fuel Tank of Fuel)
• 4912 - Toll-free
• (... 4999)
• 5 - Expense
• 50 - Miscellaneous or other expense
• 5000 - Miscellaneous or other expense
• (... 5099)
• 51 - Material and inputs
• 5100 - Reimbursement for material or inputs
• (... 5109)
• 5110 - Material consumed
• 5111 - Motor oil
• 5112 - Brake fluid
• 5113 - Filter
• (... 5129)
• 5130 - Reimbursement for service
• 5131 - Mechanical service
• 5132 - Tire repair
• 5133 - Towing
• 5134 - Bodywork
• (... 5149)
• 5150 - Transportation 
• 5151 - Municipal bus
• 5152 - Intercity bus
• 5153 - Taxi
• 5154 - Flight
• 5155 - Car rental
• (... 5199)
• 52 - Miscellaneous expense
• 5200 - Miscellaneous expense
• (... 5299)
• 53 - Loss by charging less
• 5300 - Loss by charging less
• (... 5399)
• 54 - Discount on credit card
• 5400 - Discount on credit card
• (... 5499)
• 55 - Repair
• 5500 - Commission
• 5501 - Commission to Travel Agency
• 5502 - Commission to Hotel
• 5503 - Commission to Representative
• 5504 - Commission to Employee
• (... 5599)
• 56 - Repair
• 5600 - Miscellaneous repair
• 5601 - Engine repair
• (... 5659)
• 5660 - Bodywork repair
• (... 5669)
• 5670 - Internal repair
• (... 5679)
• 5680 - Electrical repair
• (... 5699)
• 57 - Preventive maintenance
• 5700 - Miscellaneous maintenance
• 5701 - Engine oil and filter substitution
• 5702 - Brakes pads, fluids refueling and V-belts
• 5707 - Injection and ignition system
• 5708 - Sails and cable
• 5709 - Monthly revision
• 5710 - Annual revision
• 58 - Uncollectible
• (... 5899)

After completed the "Chart of Accounts", we can implement it (PDCA). Also, we could elaborate the company's budget, assigning estimated values ​​to each account, e.g. for the period of one year. It is also a good time to review the processes - operational and managerial - of each sub-class, working to improve them through the use of better methods, empower employees, implement best-practices, etc. Then define the key performance indicators (KPIs) to be monitored (PDCA), so occurring a deviation, or whether something go out the track, take a corrective action would be necessary (PDCA).

Over time and with the dynamics of the business, it will be natural if there is a demand for new accounts, then it is time to review the "Chart of Accounts", restarting the PDCA cycle.