How do I track the different divisions of my business?

divisions business

Your business is growing, but you can’t isolate where the growth is coming from. Your financial reports don’t seem to have the answers you need. If that is the case, you may benefit from tracking different divisions of your business. How do you get started? Here are some helpful suggestions. 

Decide what you want to track

The first step is deciding what divisions you need to track. Focus on how your business is operating now. Ask yourself the following questions to determine if setting up divisions is right for you.

  • What different revenue sources are currently coming into the business? 
  • Are we operating in different regions? 
  • Would our business benefit from setting up different departments?

Depending on how you answer these questions, you can determine how to organize your business operations. 

For example, suppose a construction company finds they are managing both new construction projects and remodels. In that case, they may consider establishing two divisions in the business to track the profitability of both types of projects. 

While setting up divisions can be useful, you want to be balanced. Having too many divisions can become burdensome on your team and can make it hard to see a true picture of what is going on. Too few, and you could lose insight into which aspects of your business are profitable. 

Structure your financial reports

Once you have determined your business divisions, you want your financial reports to reflect the new structure. Depending on how you are organizing your business, your accounting system can be modified in a few different ways.

Set up separate revenue categories. If you want to focus primarily on tracking different sources of revenue, creating additional revenue accounts in your accounting software should help. For added insight, you can create the corresponding Cost of Sales (direct) categories that match your revenue categories. 

For example, let’s say we have an electric contracting company that provides installation and maintenance services. Setting up separate revenue accounts for these two types of services could help them see which division is performing better. 

Use tracking features. Most accounting systems have the ability to set up classes or tracking codes that you can assign to transactions. These tracking features are especially useful if you want to track financial activity by region or by department. 

Suppose a company using QuickBooks Online (QBO) offers the same product or service but across different states. Turning on location tracking in QBO and then assigning locations to their transactions will generate financial reports that will help them see profitability by location. 

Configure your payroll

If you decide to organize your company into different divisions and you have employees, you want to make sure your labor costs are being allocated correctly. Depending on the divisions you choose and the nature of what employees are doing, this can be simple or more complicated. 

Ask yourself these key questions when it comes to your payroll:

  • Do I have employees working exclusively in a certain department or location?
  • Do I have employees that change the nature of their work throughout the day? 
  • Where are my employees located? Do they report to an office or are they remote?
  • Depending on the nature of my employees’ work, would their labor be considered direct or overhead?

Here is an example of a payroll structure that might work. Let’s go back to our electric contracting company mentioned previously. They have installation technicians, operation supervisors, and administrative staff. 

They could set up their payroll in such a way that those in the installation and operation divisions have their labor be categorized as direct expenses. Administrative salaries and wages would be assigned to overhead expenses. By setting up the payroll in this way, management would have greater insight into the labor costs associated with revenue-generating work. 

Establish clear processes and policies

Once you have divisions in place, you need to communicate with your team how different financial activities will need to be tracked. Here are some examples of the different areas to review with your team.

Invoices & Deposits. Do customers pay for one service at a time or a variety of services? Do you have customers from different locations? How will the invoices need to be structured to accommodate that?

Bill Payments & Expenses. Are there bills that include expenses from multiple divisions? How should the bills be entered into your accounting system? When expense receipts are turned in, should there be additional documentation included showing which division is responsible for the expense? Are there common expenses that should be split up by a percentage for each division? 

Chain of Command. Who is responsible for each division of the company? Should payments to vendors be approved by certain team members before they are paid? Should payroll information be approved by someone within the division before it’s submitted to be paid? 

Setting up and tracking your business by divisions is a big step and one that should not be taken lightly. However, it can be a sign of progress for your business growth. Feeling overwhelmed by the prospect? Take a step back and start with this article we wrote on how to determine which parts of your business are profitable.