June 5, 2013 by Ed Becker
Accounting is all about information for effective business management. Classes are one way to get the answers you need quickly and easily.
It’s easy to forget sometimes in the hustle and bustle of keeping track of bills and invoices and customer payments and tax time and everything else that accounting isn’t just about numbers. Properly handled, accounting is about providing you with the information you need to manage your business. Organizing your books from the beginning is the key to getting the highest-quality information. While there are several ways to go about this, the option to use classes in QuickBooks can be an important component of well-organized books.
Classes give you a means of adding a second dimension to your data classifications. That may sound complicated, but it really isn’t. Probably the easiest way to understand this concept is to look at a very common application of classes: tracking multiple locations for the same business.
Let’s say your company operates three restaurants. You’ll have different types of income, like Food, Beer, Wine, and Liquor. Obviously, you’ll often want to see how each restaurant is performing. One way to accomplish this is through your chart of accounts, creating income accounts along the lines of Food – Location 1, Food – Location 2, Food – Location 3, Beer – Location 1, and so on. This works, but it’s not very elegant. Expenses are important, too, and you’d have to create three separate versions of every expense if you used this approach.
You can instead create three classes in QuickBooks: Location 1, Location 2, and Location 3. Each time your bookkeeper enters a transaction, it will be assigned one of these classes. (You can actually set a company preference to require the use of classes, too.) Now all you need is your four income accounts (Food, Beer, Wine, and Liquor) and your various expense accounts. Adding a new location when your company grows is a breeze, too: just add a single class to the list, instead of adding a “Location 4” version to every single expense and income account.
The beauty of classes really comes through when you start reporting. A P&L, for example, can be run as a consolidated statement for your entire company, but with the click of a dropdown menu you can see each restaurant in its own column on one report. You can also easily filter the report to see only one restaurant if you choose.
If you set up classes to represent multiple locations, it’s a good idea to have an additional class called “Corporate,” “G&A,” or something along those lines. You’ll always have above-store-level expenses, especially if you have one or more staff members (like a bookkeeper, administrative assistant, or operations manager) who don’t work for any one location. Yes, you can divide these costs out among all your locations every time, but that can quickly become a real hassle.
While multi-location businesses are the obvious use of classes, it’s possible to get creative with them. Say you have a small business that doesn’t even require employees—a new consulting business, for example. If you’re marketing your services in several different ways, you might like to know which methods are generating the most revenue. You could set up a class for each of your marketing channels. Ordinary financial reporting wouldn’t show it, but that one little click again will show you what’s producing your income.
Of course, it’s not just about how much revenue a marketing channel generates; it’s about how much it costs to do so. If you similarly assign classes to your advertising expenses, adding “% of Income” to your report will show you how you’re doing in percentage terms.
This is just one quick example of a creative use of classes. Your own business may have its own unique characteristics that can also benefit from this technique. Consulting with an accountant as you set up your books (or even if it’s time to upgrade your accounting) is a great way to ensure you get the most from QuickBooks.