See Where Your Money Goes: Tracking Categories in Xero

Headlines are great for a quick pulse check, but for informed decision-making, businesses – especially those with diverse offerings or operating in multiple sectors – need a deeper understanding. This is where robust management accounts reporting comes in.

Good management accounts starts with the data you are entering. If you put rubbish in, you get rubbish out.

The more accurate data you store, the better chance you have of having useful information when it comes to making those critical business decisions.

The Power of Granular Data: Seeing Beyond the Bottom Line

Traditionally this was ‘Departments’ in Sage, but now we have powerful tools like Xero’s tracking categories and QuickBooks’s Class Tracking. These features provide a far more efficient way to categorise your income, expenses, departments, jobs, events, and any other profit-generating segments within your business.

This provides an additional level of data capture over and above the existing accounts codes or nominal codes to aid on business decisions.

From Flat to 3D: Unlocking Actionable Insights

When income and expenses are categorised using the traditional Chart of Accounts or Nominal Codes approach, reviewing the businesses performance can be very lineal. While the Chart offers a high-level view of your overall performance, it lacks the depth to pinpoint areas that are excelling or lagging.

Introducing tracking categories transforms your reporting from a flat, two-dimensional view to a rich, three-dimensional one. Instead of just seeing your total income for a period, you can instantly see which segments of your business are generating it.

But the power doesn’t stop there. By tracking associated costs alongside income, you can gain crucial insights into profitability. For instance, you can identify if your top-selling sector actually delivers the expected profit or if low prices are artificially inflating sales.

Tailoring Categories for Maximum Impact

The key to unlocking actionable insights lies in setting up relevant categories. This means defining your business goals and aligning your reporting structure with them. These categories will vary depending on your industry and can range from broad operational areas to granular details like customer types or product lines.

Here are some real-world examples we have set up for our clients to see how different businesses leverage tracking categories:

• Construction: Track income and expenditure for residential vs. commercial projects
• Event Management: Analyse income and expenses for individual events.
• Property Developers: Categorise expenses by project for better cost control.
• Retail: Measure profitability by store location to identify areas for improvement.
• Service-Based Businesses: Track income and expenses by manager/partner to assess individual performance.
• Advertising Agencies: Analyse profitability by niche market to optimise campaign strategies.
• IT Managed Service Providers: Distinguish between recurring and one-off revenue/expenses for accurate financial planning.