Frequently Asked Questions: How Can Class & Location Tracking Help My Business?
As your business grows, looking at one Profit and Loss statement for the entire company may no longer tell you enough. You may want to understand how different departments, service lines, locations, or other parts of the business are performing without creating dozens of new accounts in your Chart of Accounts.
That leads to a common question:
- How can Class and Location tracking help?
Class and Location tracking allows you to organize financial activity by different parts of your business so you can compare performance and understand what is driving your results. Instead of adding separate income and expense accounts for every department or business segment, you can use Classes and Locations to create more detailed reporting while keeping your Chart of Accounts manageable.
What is Class tracking in QuickBooks Online?
Classes allow you to categorize transactions by meaningful segments of your business.
Depending on how your company operates, Classes might represent:
- Departments
- Service lines or practices
- Divisions
- Programs
- Types of work
Once transactions are consistently assigned to Classes, you can run reports such as Profit and Loss by Class to compare financial performance across those areas.
This can help answer questions such as:
- Which service line generates the strongest margins?
- Is one department spending more than expected?
- Which part of the business is contributing the most to overall profitability?
What is Location tracking?
Location tracking provides another way to separate financial activity within QuickBooks Online.
Locations can represent physical offices, branches, regions, or other operational areas that management wants to evaluate separately.
For example, a professional services firm with offices in multiple markets could use Locations to compare financial performance across offices while using Classes to analyze different practices or service lines.
The important part is deciding what each tracking method represents before you begin using it.
Why not just add more accounts to the Chart of Accounts?
Creating separate income and expense accounts for every department, service line, location, or type of work can quickly turn your Chart of Accounts into a long, difficult-to-manage list. Classes and Locations provide reporting detail without requiring a separate account for every part of the business.
Your Chart of Accounts tells you what the income or expense was. Classes and Locations can help tell you which part of the business it relates to. For more on creating a cleaner account structure, read our Streamline Your Chart of Accounts blog.
How does this work with project based accounting?
Class and Location tracking can be especially valuable for businesses that use project based accounting, including professional services firms and trades. The key is understanding that Projects, Classes, and Locations answer different questions.
A professional services firm, for example, might use Projects to track the financial performance of individual client engagements, Classes to compare consulting or service lines, and Locations to evaluate different offices or regions.
A trade business might use Projects to understand the profitability of individual jobs while Classes distinguish service work from installation or other divisions.
Used together, these tools can give management a much clearer picture of where revenue is coming from, where costs are being incurred, and which areas of the business are producing the strongest results. For an example of how detailed job-level accounting supports profitability in the trades, read Accounting That Keeps Trades Profitable and in Control.
Turn tracking into better reporting
Collecting additional data only has value if you use it. Once Classes and Locations are set up consistently, they can be incorporated into financial reporting and dashboards to provide a clearer picture of performance. You can compare results across business segments, monitor trends, and identify areas that may need attention.
Our Use and Create Custom Dashboards with Performance Center blog explains how QuickBooks reporting tools can help you organize and evaluate financial information so you can focus on the metrics that matter to your business.
Setup matters
Class and Location tracking can create better reporting, but too much tracking can create unnecessary complexity.
Before setting it up, determine:
- What business question are you trying to answer?
- Should that information be tracked as a Class, Location, Project, or another dimension?
- Who will be responsible for assigning it to transactions?
- Which reports will you actually use?
The goal is not to track everything. It is to capture information that helps you understand and manage the business.
When to get help
If you want more detailed financial reporting but your Chart of Accounts is becoming difficult to manage, Class and Location tracking may provide a better approach.
One 8 Solutions helps businesses determine the right reporting structure, configure Classes and Locations correctly, and build workflows that keep the underlying data consistent.
Want better visibility into what is driving your results?
If you want to understand performance across different areas of your business without overcomplicating your books, we can help you set up Class and Location tracking and build reporting that gives you meaningful insight. Schedule a meeting today!
