If your business uses Xero Projects, you already know it’s a time saver and fantastic at keeping your accounts organised and in order. But you might find it helpful to take your record-keeping to the next level with Xero’s tracking categories.
Will using Xero tracking categories be useful in your business? Well, that depends on the structure of your business and what you might use that information for.
Let’s take a closer look.
What are Xero tracking categories?
Tracking categories are groupings that you can assign to different profit and loss entries for your business in Xero Projects.
In older accounting systems, you would need to set up a subcategory to pull out incomings and outgoings of specific sections of your business, and Xero’s tracking categories do the same thing.
Who is Xero tracking categories useful for?
Whether you use outsourced bookkeeping services or manage your accounts yourself, the tracking categories can be helpful if you have different branches of your business. For example, a yoga studio with various locations or a marketing company with various sales regions.
It can also be useful if you have a larger business with different departments, for example, marketing, sales, admin, etc., that you would like to be able to look at separately.
How do Xero tracking categories work?
In your Xero bank feed reports, you’ve usually got income, cost of goods, and expenses – and all of these have account codes assigned to them. If you use Xero tracking categories, you can segment that information further to get more granular about your detail.
This is the sort of detail that can come in handy for business budgeting and cash flow projections.
You can run reports which makes it easy to assess each segment and see how they’re performing. And you can also segment your Xero payroll report, which can be useful for calculating your payroll tax.
Running your tracking category reports each month can give you clear visibility on the profit and loss of each of your segments, which gives you the information you need to make decisions about your business budgeting, where to expand, where you might save some money, and what might need some attention.
Who doesn’t need Xero tracking categories?
Xero tracking categories aren’t for everyone.
If you are running a simple, small business, it might not make sense to divide it up into categories that don’t exist yet.
It’s also a waste of time to create tracking categories if you know you’ll never take the time to look at the segmented data and make any changes based on that information.
Xero tracking categories can take some time to set up, so we recommend you only do that if you know that you will do something with the information.
How do I set up Xero tracking categories?
Once you’ve got Xero tracking categories set up, they are easy to use.
Dollars + Sense can help you to set up your categories, as well as talk you through how it all works and how you can run your own reports each month. We can also help you to run historical reports by applying Xero tracking categories retrospectively!