Does your business have multiple revenue and cost streams? Be sure your accounting set up is providing the insight you need to determine profitability of each business unit. The simplest way to ensure that you have the information you need is to utilize a Class system within your accounting software. Using a proper Class system will allow you to isolate each business unit to determine what adjustments are needed to maximize profits.
The first question you need to ask yourself is, “Could this business line/unit be a standalone business?” If your answer is yes, then you should be using a Class system. A prime example is a hotel with a restaurant. Each piece could be a standalone business, and each has its own unique revenue and cost structures.
Best practices are to set up a Class for each business unit and one for “General & Administrative” expenses that provide value to each, for instance marketing campaigns that benefit each business unit. Then every revenue and cost item should then be entered utilizing the appropriate Class. Each month, the Profit & Loss should be reviewed by Class ensuring all revenues and expenses are properly coded. Proper use of Classes will allow for a Profit & Loss to be run by each Class by month over time to find trends.
