Knowing the profitability of the clients, departments, projects and services in your business is essential for making informed decisions on where you are taking the business.
Without this information to hand, your business will be held back from reaching its potential as resources are poured into the wrong areas, restricting profitability and, in some cases, leading to money being lost in certain areas of the business.
Xero has a feature called tracking; a simple method for assigning income and costs to a category. It can be used in every type of transaction including raising sales invoices, recording purchase bills, expenses, bank payments and posting manual journals.
Tracking isn’t visible on the invoices when sent to clients, but acts as internal data for your own company’s reporting. It is features like this that have made cloud accounting technology to be not just more accessible than traditional server-based software but even more powerful.
When you get the data input right with Xero, the range of insightful reports that you can run is huge.
Here’s how it can benefit your agency:
#1 Analyse your business in more detail
Not being able to analyse your accounts in further detail can result to an unfair and inaccurate view of the business, this can lead to business decisions being made incorrectly as you do not have the broken down real-life data needed.
From this, business decisions can be made that will negatively affect the business and cause future problems and ultimate failure along with an unnecessary headache and frustration for you as the agency owner.
Tracking can be used to manage and filter the management accounts to be able to break down the different areas and projects in the business. This gives you a clearer view of the business and allows decisions to be made more accurately as the real-life data is broken down and can be viewed in more detail.
This can prevent wasted resources and mistakes when extracting data from the management accounts.
#2 Breakdown profitability by each tracking category
Not being able to see where the profit is coming from and which services, departments, clients are the most profitable can lead wasting resources on unprofitable clients and projects, losing money or leaving money on the table by not exploring your most profitable services or upselling to your most profitable clients.
Even though a profit is being made, a big percentage of your services, departments, clients could be driving that profit, whilst others are dragging the results down. This can lead to your business being inefficient and not maximising your profits.
To help your agency to become more profitable and predictable, tracking can be used to help breakdown the different functions within your agency.
When applied, it can help you to break down where the profit is coming from and which areas are the most profitable. From this, it can help you make decisions on how to improve profitability as you can easily analyse the most and least profitable areas of the business. This allows the business to flourish in the future as only profitable clients, projects, services are being sold to allow maximum profits to arise.
#3 Recognise where your money is being spent
Not being able to recognise where your money is being spent could cause the business to be spending money in areas that are not profitable and worthwhile.
You could be spending large amounts of money for purchases in an area of the business which is not necessary, without knowing whether it’s needed or not you will continue to lose out on profit.
Tracking can be used to track purchases as well as sales. This allows the business to track which services, departments, clients money is being spent. From this, you can see which services, departments, clients are spending the most money.
This can allow you to analyse the business in more detail and cut costs in certain places of the business in order to maximise profitability because the spending of each service, departments, clients can be accurately viewed and cut if needed.
You can get a clear view of how much money is spent in each service, departments, clients compared to the revenue made from these.
If you want to find out more about improving business performance using cost centre reporting, arrange a discovery call here.
