Green plan placed on round euro coins

THE IMPORTANCE OF PROFITABILITY CENTERS FOR BUSINESS

Green plan placed on round euro coins

Arben Ymeraga

2 min read

One of the main objectives of why a business owner should follow the accounting and finance aspects is to have information about his earnings. What is happening to profit? Is it growing? Is it shrinking? Is the value of earning something worth investing the time, energy and money that an owner makes into his / her business?

These questions are very critical. No one wants to waste time on a business that is barely surviving and probably not likely to improve? Therefore, every owner is always looking for the best ways to find out about their business performance. What is working and what is not?

One way is to divide the business into organizational units / profit centers that can be easily tracked. For example, construction, manufacturing or project-based companies want to track the profitability of each project. Production companies want to track the profitability of different product lines. Wholesale companies want to track the profitability of the various products or brands that they represent. Therefore, profit centers differ depending on the industry in which the business operates and such examples are diverse.

For each profit center, the company runs the accounting as a separate entity in order to calculate profit so that managers or owners make decisions about product / service costs and operating expenses.

This is easily done in QuickBooks, by activating the “classes” option.

For example, a company that deals with the production of doors and windows, QuickBooks defines profit classes / centers as “Doors” and “Windows”.

When recording sales for each product or service that is billed, it is necessary to determine which class it belongs to (this can be further automated when opening the product / service). And with invoice storage this record not only appears in company data, it also automatically reflects in certain classes. The same applies to purchases, where each purchase must determine which class the purchase belongs to.

So with this way of recording, the profit / loss statement and many other detailed reports for each profit center are available at any time.