How using QuickBooks classes increases profits for a food business

Using QuickBooks® Online Advanced to automate your accounting process can help you save time and generate more accurate financial statements. Assigning classes in Advanced can make your profit and loss reports far more useful, particularly in the food and beverage industry.

Industry trends are changing how food companies prepare and deliver food to customers, and these changes add complexity to the accounting process. Once you understand what classes are, you can use them to produce more detailed reports.

Implement these tips for using classes to supercharge your financial reporting. You’ll have better information to make more informed decisions, and that can lead to higher profits.

Let’s start by explaining how classes work in QuickBooks Online Advanced.

What are classes in QuickBooks?

Advanced allows you to generate dozens of reports, including multiple versions of the profit and loss (P&L) statement. The P&L is based on the income statement formula, which is revenue less expenses equals profit. Your chart of accounts may include dozens of revenue and expense accounts to track P&L activity.

Using classes in QuickBooks Online Advanced means you can add more detail to each transaction, and generate more detailed reports to manage your business.

Assume that Lakeside Restaurant has a revenue account called revenue-dinner menu. The restaurant offers 10 dinners on the menu, and this account tracks sales. The owner would like to know how many meat, fish, and chicken dinners are sold, so the restaurant can use the data to order food. Meat, fish, and chicken will each be a class for the revenue-dinner menu account.

How to add classes in QuickBooks Online Advanced

If you are an administrator in Advanced, you can set up classes. Here’s how:

1. Go to Settings, and then to All Lists.
2. Select Classes.
3. Select New. Give this class a name.
4. To add a sub-class, select is a sub-class and select the main class. You can nest up to five classes.
5. Select Save.

Lakeside’s owner can use these steps to create meat, fish, and chicken classes for the revenue-dinner menu account. Each time a transaction is posted, Advanced will alert the owner to select a class.

If chicken is selling well, the restaurant will need to order more food from the chicken supplier. When sales of fish dinners declines, the owner might change how the fish is prepared, or start offering a different type of fish.

You can also add subclasses. The fish class, for example, might include salmon and trout subclasses. Food and beverage businesses can create classes to make better decisions as the industry changes.

How industry trends impact financial reporting

Shifting customer preferences, along with varying business and cultural trends, have an impact on how food and beverage businesses serve customers. Restaurants are changing their menus, and serving food in new ways.

These changes result in more complicated financial reports, and using classes can help an owner evaluate different components of the business. Forbes lists a number of food service and restaurant trends:

• Increased demand for delivery: DoorDash and Grubhub were both growing before the pandemic, and delivery demand has increased in the spring and summer of 2020.
• Lowering costs using commissaries: A lease or mortgage payment is typically the largest cost for a bar or restaurant. Owners may also make a big investment in renovating the space and installing equipment. A commissary describes a restaurant that rents cooking space on a short-term basis, in order to create a delivery-only business. Cloudkitchens provides delivery-only kitchens for restaurants, which lowers start-up costs.
• Competition from grocery stores: Your local grocery store may now offer traditional grocery shopping, along with dine-in and take-out food services. All three services are offered at the same location, which makes these “grocerants” appealing to consumers.

Other trends, such as sustainable food products and fast-casual dining, continue to grow. Using classes is a great way to track your results, as you adapt to change.

Let’s say Lakeside Restaurant decides to start a food delivery business, using the same menu items. The owner creates a class called delivery for each revenue and expense account, and runs profit and loss reports to monitor the delivery business.

Using classes can help you identify and resolve problems sooner, rather than later.

Understanding performance to make better decisions

If you operate a food and beverage business, you may face a number of challenges. Use classes to monitor your results as they’re happening, so you can address problems and maintain business profitability.

Assessing staff turnover and training

According to FinancesOnline, employee turnover in the restaurant and food service industry ranges from 100% to 130% each year. The average turnover cost (to hire and train new workers) is more than $2,000 per staff member. If Lakeside trains the kitchen staff effectively, they will prepare meals correctly and avoid wasting food ingredients.

Three months after starting the food delivery business, Lakeside’s owner notices an increase in food costs in the delivery class. The owner manages food costs by comparing the costs to total revenue. Based on experience, the owner expects food costs to be 40% of revenue, but notices that delivery has food costs totaling 55% of revenue.

After talking with the staff and monitoring food preparation, the owner determines that the staff needs more training to avoid wasting ingredients during preparation. Taking action reduces food costs moving forward.

Managing the risk of theft

Restaurants can have a high risk of theft, and using classes can help you minimize that risk.

Restaurants process a large number of transactions that are small, compared to other businesses. A couple may spend $40 on drinks, or $70 on drinks and a meal. Your employees must process dozens (or hundreds) of small transactions each day, and the activity level can lead to errors and possible theft.

If you accept debit cards and credit cards, you can reduce cash transactions, which are at higher risk for theft. Automated payments generate a documentation trail, and stealing is more difficult. However, a busy restaurant must analyze financial reports to minimize each type of possible theft.

Lakeside’s owner reviews revenue each week, and compares total revenue to cash deposits for the week. Cash deposits are made each morning, and the debit and credit card payments are processed within 48 hours. As a result, each week’s revenue should be very similar to the cash deposit total.

In the last week of May, the owner notices that the restaurant cash deposits are 10% less than the revenue. To investigate, the owner compares daily revenue to cash deposits, and notes that the delivery class had a large decline in revenue for two days during the week.

By using classes, the owner can determine the employees who worked on delivery when the unusual decline in revenue occurred, and investigate further.

Deciding on fixed asset purchases

Restaurants must invest in fixed assets, including furniture, fixtures, refrigerators, and ovens. These assets require proper maintenance, and will eventually be replaced. Use classes to help you plan for asset replacement.

Lakeside Restaurant serves customers in the main dining room, and uses a banquet room for events, including weddings. As assets are used in a business, the cost of the asset is reclassified into depreciation expense. Each depreciation expense transaction is assigned a dining room, banquet room, or delivery class.

The owner generates a profit and loss statement by class. If the dollar amount of banquet room depreciation expense is larger than the other classes, Lakeside may need to replace banquet room furniture and fixtures in the short term.

Take advantage of the class feature in QuickBooks Online Advanced, and create financial reports that are most useful for you. To use class effectively, follow these best practices.

Best practices for using classes

Before you create any classes, talk with your staff and think about your business. What additional information do you need to manage your business more effectively?

Most owners need to separate revenue and expense activity into departments or locations, so that they can assess profitability in detail. Lakeside’s owner has a class for the main dining room, the banquet room, and the delivery business.

• Every transaction should have at least one class: Every revenue and expense account should have at least one class. The owner can then assign every dollar of revenue and expense to a class, so that the profit and loss report by class is most useful.
• Create an overhead class: Overhead is defined as a cost that cannot be directly traced to a product or service. Lakeside pays for insurance on the restaurant, and does not separate the expense between the dining room and the banquet hall. Set up an overhead class for these types of expenses.
• Remove classes that aren’t useful: If you generate profit and loss reports for several months and decide that a particular class isn’t useful, remove it. This approach will make your reports easier to review.
• Consider using generic classes: Use generic classes to simplify your profit and loss reports, and to minimize detail. Lakeside has a contract with a repair shop, and the shop repairs all of the assets owned by the restaurant. Lakeside has a repair class for the dining room and the banquet hall, but does not assign a repair class for each type of asset.

You can use classes to track expenses due to spoiled or stale food items. When a shipment of meat can no longer be used to make dinner items, the cost of the purchase must be reclassified into an expense account. The owner can assign a class to these expense accounts.

How QuickBooks Online Advanced can improve your business results

QuickBooks Online Advanced offers the most customization and power of any QuickBooks Online plan. Get reports with deeper insights and save time with batch transaction processing. Your data is protected, and the software is easy to use.

Use the system to generate more useful data, and to increase profits.