Using QuickBooks Classes
What Classes Can and Can’t Do:
Classes are QuickBooks’ way of breaking your business’s financial information into trackable segments or divisions. Classes are not meant to duplicate the chart of accounts, but they can supplement it. Classes are very useful when comparing different departments, service or product categories, or employees.
However you use classes, they must only be used for that purpose. Trying to divide classes to track separate things will produce mostly meaningless results. They must also be used consistently. Like using QuickBooks overall, unless the data is entered consistently the reports will be unusable. Or worse, you’ll make bad decisions based on bad information.
How Should Classes Be Set Up:
How classes are set up will depend mainly upon your business type and needs. Here’s a few things to keep in mind.
- Using more than 7-10 classes will make reports harder to read, more than that even harder
- Name classes to match how you think and talk about business. Example for a retail store: Use “Shoes” and “Accessories” as classes instead of “Dept 1″ or “Class 2″. Undescriptive class names lead to confusion and mistakes.
- Only use classes to track one type of category. For example: if you use classes to track income and expenses by category, you can not also track expenses by vendor type. (Yes, I have seen this.)
Think about how you run your business before setting up classes. Here are a few examples of classes.
Product Businesses: women’s, men’s, children’s, shoes, accessories, etc. or location 1, location 2, location 3, etc.
Service Businesses: carpet cleaning, window washing, janitorial services or truck/ crew 1, truck/crew 2, etc. or commercial, residential/consumer or consulting, production, etc.
The variations are as unlimited as the types of business that exist.
Why Classes are Beneficial:
The most frequently used report using classes is the Profit & Loss by Class. (Reports > Company and Financial > Profit & Loss by Class). This report is incredibly useful for recognizing which aspects of your business are most (and least) profitable and trends in sales figures.
Can you answer these questions about your business? Which services bring in the highest sales? Which department is the most profitable? The least?
How can this information help you run your business? Increasing sales in your best preforming product or service class will bring in more NET PROFIT than the same increase in a less profitable class. Where would you prefer to spend your advertising dollars? Having an accurate picture of your financials ensure you can make the best choices on a day to day basis.
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