Decide what you want to see
First, agree how you want to split the business: by shop, by site, by project, by department or by sales channel. Then agree what belongs in each one and what stays central. Rent for a shop clearly belongs to that shop. Your accountant’s fee probably doesn’t belong to any of them. A division in your reports is a way of looking at the business. It doesn’t need to be a separate company.
Code it when it’s recorded
Set up tracking in Xero or whatever system you use, and agree simple rules for sales, supplier invoices, payroll and stock. The easiest time to say which site a cost belongs to is when the invoice is approved, while everyone still remembers what it was for. Avoid a “general” or “miscellaneous” heading. It always ends up holding some of the biggest costs.
Agree how shared costs are split
Some costs clearly belong to one place. Others, like head office salaries, software or insurance, are shared. You can split them by sales, floor space, headcount or time spent, but write the rule down and review it when the business changes. Sometimes it’s clearer to show central costs on their own line than to spread them so thinly that every site’s figure looks more exact than it is.
Make sure it adds up
The results for each division should add back to the total for the whole business, once shared costs are dealt with. Each month, check for anything coded to the wrong place or not coded at all. And keep the detail behind each number, because the first thing a manager will ask is why their result moved.
Example: a business with three salons wants profit by location. A test run of last month shows the problems straight away. Stylists who work across two salons are paid from one wages line, product orders go into a single stock account, and card fees aren’t split at all. The team sets up tracking by salon, splits wages using the hours on the rota and codes product orders when they’re delivered. The next month, each salon gets its own profit and loss, and the three add up to the business total.
What to check
- Clear rules for what each division includes
- Costs coded when invoices are approved
- A written rule for shared costs
- Divisions that add back to the total
- Uncoded items reviewed every month
Where to start
Before you build the report, take 20 real transactions and one pay run and try coding them to the new structure. The ones that don’t fit show you what needs changing first.