What is Xero?
Xero is a cloud accounting application that provides similar functionality as most of the standard accounting packages such as Sage 50 or QuickBooks.
Being a cloud service, the data resides in the cloud and the application is accessed via a web brower. Xero is an example of software that are classed as Software as a Service (SaaS) and you pay a monthly fee for the use of the service. Being a cloud service it has some advantages that traditional desktop applications don’t have.
What are the advantages of Xero?
1. User friendly
The first and the main advantage of Xero is that it is quite easy to use. The online accounting packages tend to be designed for non accountants and they focus on the key actions that the user needs to complete, for example creating sales invoices and logging purchase invoices. Xero is designed so that its fairly intuitive to use.
As the software is a cloud application, it is accessible anywhere. You can use Xero from your desktop browser. You can use it from your tablet such as the iPad or an Android tablet. You can have Xero on your smartphone.
This allows you to check your accounting information wherever you are. I’ve had a TV documentary maker who was out on one of the Aran islands and needed to check a balance. He had his iphone and a signal which allowed him to just go online and check it on his phone – that is a big advantage for some clients!
3. Software is always up to date
The software is always updated, unlike a desktop where you buy an application which you may get as a download or on a disc, and then that application doesn’t change unless you choose to update to the latest version. With Xero, updates are being introduced regularly, so you always have got the latest, most up to date version and it is all included in the price. And every time new features are added, you have access to those features almost immediately.
4. Integration with other Cloud applications
As Xero is in the cloud, it can easily be connected to and exchange information with other cloud applications. There are lots of cloud applications that can work with Xero such as inventory management applications, CRM applications, banking applications. Xero has the ability to push data out to these applications or pull data in from them.
Several years ago I had a client who did a lot of work online. The nature of the work was that he had a lot of small transactions for which he got paid very small amounts of money – usually cents. This money was paid through PayPal. He was able to set up his accounting package to connect to PayPal and this high volume of small accounting transactions were pulled in, immediately on login, into his accounting application. This really streamlined his online operation and made it a whole lot more efficient for him. So the ability to talk to other could applications can be very useful.
5. Your accountant can help you remotely
Xero makes it easy for your accountant to access your data remotely. Let’s say my client is using Xero, and they are having a problem. He or she can ring me up, we can go onto a Skype call or use some sort of other conferencing type call. We can share our screen, so they can be looking at my screen or I can be looking and his/hers screen, whichever we want. Using these tools we can resolve the question fairly quickly. This could save a trip out to the clients’ premises for me which then makes the service less costly for the client if all they need is five or ten minutes of my time.
6. Safe data back-up
Xero is always backed up. The software provider will have the application and data stored in a number of different data servers, so if anything happens to one data centre, they have a backup and can be accessed from another data centre. You won’t be aware of this happening. You won’t have the need to take backups or store them off site. With Xero you also have the option of downloading data, just to be sure, to be sure, but in fact, that is not not needed. They have it backed up better than you would probably do yourself.
Xero is a mature product and at this stage, it has a lot of very useful functionality. It offers reccurring invoices, multi-currency processing and automated bank reconciliations among other features.
A big advantage of Xero is that it has some very basic “intelligence” built in to the software. For example if a payment goes through your bank that might be for Three or Vodafone, you can set up a rule that this is a telephone bill, and that is normally a subject of VAT of 23%. Every time that comes through, Xero will let you know it thinks that’s a telephone bill with VAT at 23% and you can accept or reject/edit the suggestion. You don’t have to do any more with it. You set up the rule initially, and once Xero recognizes that it’s a payment for Three or for Vodafone, it will code it properly. It makes the process of coding at month end accounting simpler, easier and faster.
What are disadvantages of Xero?
1. Slow with high number of transactions
There are some disadvantages to Xero. You are using an online piece of software and if you have a lot of transactions and/or a slow connection, you may be waiting for a while until the screens re-build. So if you have a lot of transactions, Xero might not be for you.
Book-keepers who come into a company once per week or month to bulk enter the transactions often find it doesn’t suit the way they work.
2. Lack of support in Ireland
The Irish Banks don’t support the online accounting packages very well right now. Elsewhere around the world, banks are providing feeds to Xero, so the bank statement can be pushed straight into Xero and then when you log into Xero, the application will tell you that you have these transactions waiting to be posted, and will use its intelligence to suggest to you what it thinks the posts should be.
There is a workaround to overcome the lack of a feed – exporting the transactions from the bank and importing them to Xero but its more cumbersome. Having said that, I use the workaround and I have dramatically reduced the amount of time I spend on monthly accounts.
Xero costs more than a traditional desktop accounting software. If you use something like QuickBooks online, you may have bought that for maybe €180-€200 for the licence, and you may get three to four years out of that before you decide to upgrade. So it could cost you €50 a year.
Xero typically costs around €25 a month, so you would be spending maybe about €300 a year on your software, which is a little bit more than you might be used to be spending.
How do you decide if Xero is right for you?
First of all you should look at the number of transactions that you have. If you have a low number of transactions – a low number of sales invoices and a low number of purchase invoices, then I would say Xero would be well worth looking at. If you have a high number of transactions, it might slow the process of entering these transactions down when you try and enter them all into the system.
Think about your broadband. Is it fast enough? If it can handle something like Netflix, then it’s ok and can handle Xero comfortably. If you speed is 1MB/s or less then maybe no.
If you are already using some cloud apps, like a CRM app or an inventory app or maybe something like Expensify for managing expenses, Xero can integrate with those cloud apps, and can make transferring data from one to the other a lot more streamlined. If you are using any of these applications, I would strongly consider looking at Xero.
You would have to be comfortable with .csv files. In Ireland at the moment the banks don’t provide the banks feeds for us, so what you have to do is use the workaround mentioned above where you go into your bank account and export you bank statement into a .csv file, which excel can work with. Then you have to tidy up that file, to make sure that the columns are in the right order and that it is ready to be imported into Xero. So if you are not comfortable doing that process manually, you should probably shy away from Xero
If you do your own books, you will find that Xero will give you a lot of insight into what is going on in your business. Xero will help you to really understand your accounts. Completing the tasks of entering your costs and your invoices, knowing where they go, and being able to run the reports and drill down, will all make a whole lot of difference to how well you understand your accounts.
There are some businesses where Xero would be a good fit because of the type and number of transactions that they have. For example, I am aware of furniture retailers that use Xero and they don’t have a till system or a point of sales system, all they have is an iPad. They can walk around the shop, they might have a small number of high value transactions per day and they can easily process those with an ipad and Xero. They can be with a customer, enter the sales invoice there and then, print it off on a wireless printer, give the sales invoice to the customer, and that transaction is already in their accounts.
Xero is not the only online accounting package.
There is also Kashflow – a product that initially came out around the same time as Xero, but hasn’t grown as fast as they chose to grow organically rather than by investing loads of money into marketing as Xero did. I think it is a bit simpler and a bit more user friendly, but it hasn’t developed functionality to the same extent that Xero has.
A newer product is Quickbooks online. You may be familiar with QuickBooks – one of the bestselling desktop accounting packages in the last number of years. I heard recently that QuickBooks has made a decision to move online totally and that they will no longer be updating the desktop versions. At the moment I feel that QuickBooks and Xero will be the two main competitors of the online accounting packages. They will probably fight it out. I think they will probably end up having similar functionality.
SAGE have also introduced an online accounting package. The initial feedback was very poor, I know it has gradually been improved but I think they are a bit behind Xero and QuickBooks online.
Some of these online packages are a little behind, and don’t have as many integrations yet. Whether Xero will stay as the main player in the future, I am not sure. But right now, it is definitely the main player and should be considered if you are thinking of an online package.
We have worked with all the main SME accounting packages. We also have significant experience helping select and implement software for larger businesses. If you are thinking of going with Xero, or another cloud accounting package, feel free to contact me at firstname.lastname@example.org.