We have been living with Xero for 7 years since we took the plunge and switch from the classic Sage to the ‘new kid on the (cloud accounting) block‘. Our first full year of Xero was FY 2015-16.
In this post from February 2018, I talk about our experiences (good and bad) in making the switch.
Back then, we were still really only using the Xero basics. We were still comparing everything to the functionality we had from Sage and trying to replicate it – sometimes successfully and sometimes not! I can’t believe we are now a further 4 years on. Consequently, I felt it was worth bringing things up to date with a look at how our use of Xero has evolved.
Before I press on, a disclaimer…Thre are several cloud accounting offerings out there and I only have limited experience with the others. I’m sure they offer some great features. However, I have now built a solid, real-world knowledge of Xero, and I love it! It is also interesting to note that several of our clients and suppliers have switched to cloud accounting and every business (that I am aware of) has independently switched to Xero. Coincidence?
Key developments
First, I am not an accountant (though my accountant thinks I should be!). I have run BSA Marketing for over 30 years which means I get involved with pretty much everything! I have always believed that staying on top of the numbers (and particularly the bank account!) was a key to staying in business. Consequently, the accounts were always important, and for many years a real chore, as the cycle of Bank reconciliation, VAT Returns, Payroll and Year-end submission kept coming around.
I know I could have paid someone else to do it but I like having my finger on the pulse of the business!
Business accounting can be split into 3 distinct sections:
- Book-keeping & Statutory Returns – keeping the numbers up to date and accurate
- Sales Invoicing & Credit Control – keeping the cash flowing
- Management Accounts – understanding how your business is operating
Xero delivers in all 3. I don’t intend to go into the detail of how Xero delivers but I think the good old marketing staple of features and benefits will tell the story:
Living with Xero – Easier Book Keeping
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Repeating Purchase invoices
We have regular suppliers who invoice us every month. In many cases, they even invoice the same amount each month. Back in the day, every single one of these invoices had to be input individually. The same product/service details and often even the same numbers, time and time again, only the date changed.
The Xero repeating purchase invoice system simply deals with this. You enter the details once and then, regular as clockwork, Xero creates the new transaction. All you have to do is edit changes (if any) and then click to approve. You still have control but Xero handles the monotony. -
Efficient Bank Reconciliation
Reconciling the accounts to the bank statements was always the biggest pain. I used to set aside a day a month to do the bank rec. From the outset, Xero offered bank feeds to connect to your bank and automatically download/import statements and transactions. In 2018, this process was clunky and too slow. I didn’t use it, preferring to download and import transactions manually as and when I needed to. Even this was a big improvement on Sage. In Xero, I can set up rules so the system knows how to process particular transactions. Furthermore, Xero can learn. It will make suggestions as to how a transaction should be processed based on previous transactions. As always, you have the final say to approve, edit or delete any transaction.
The manual import process took my day-a-month down to 2-3 hours. A big improvement but still a chunk of time out of a working day.
Recently, things have improved even more. With recent developments in open banking, bank feeds have become more available and ‘real-time’. Whereas I might be manually importing and reconciling 100+ transactions in one sitting, I now do them almost imperceptibly. I tend to log into Xero most days and exch time, the bank feeds have done their work and there is a handful of transactions for my attention. They normally take less than 5 minutes to deal with. At the end of the month, the reconciliation is up to date and I have barely noticed doing it!
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Efficient statutory routines
Whether we like it or not, VAT and other statutory returns are a fact of business life. Furthermore, with the government pushing the Making Tax Digital agenda, the requirement for businesses to submit data is on the increase. Xero handles this really well. The automation in the book-keeping processes minimise the risk of data-entry errors and, while it always makes sense to review statutory submissions before you send them, in my experience, VAT returns etc. are always calculated accurately. In addition, there is the option to make amendments in future returns to resolve any errors or omissions.
Living with Xero – Efficient Sales Invoicing
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Repeating Sales invoices
If you have clients/customers that you invoice regularly then the Xero repeating invoice facility is great. Just like the purchase invoices discussed above, you tell Xero who to invoice, for what and how often – and it just does it. It is also a great way to make sure you don’t forget to invoice a customer! Again, you have complete control to edit or exclude individual invoices and only approve an invoice once you are happy with it. Once you have your Sales invoices, Xero can automatically create PDFs and email them directly to your customers. They can then view the invoice with a single click. You can even include the option to pay you online by credit card directly in your invoice.
Living with Xero – Better Management Accounting
If book-keeping, invoicing and statutory returns are the mundane essentials of accounting, management accounting is the interesting bit. Good management reports give you the information which allows you to see how well your business is performing, identify strengths and weaknesses and make plans to grow and drive towards your goals and objectives.
I have looked at how Xero helps minimise the time and effort required to keep on top of the basics but it also has a good offering in reporting to help you understand your business performance. This is also an area where the cloud concept shows its benefit. Xero has hundreds of thousands of users with all of them feeding ideas and usage stats into the Xero development team. If they see an opportunity to add functionality to the application this can be developed and launched into the live application so that all users benefit. There is no need to pay to ‘upgrade to the latest version!‘
I must admit that 4 years ago, the Xero reporting functionality was not its strength but this has steadily improved. New and more flexible reports are added regularly.
I have recently been putting more focus on our own management accounts and I am uncovering some really neat features that are providing really useful information to our business.
Living with Xero – Limitations
Like any piece of software, Xero is not perfect. It is more suited to the simpler accounting of most SME businesses. It has limited inventory management.
If you need to extend the core functionality, there are many third-party integrations but these can sometimes be complicated to set up. Also, they (normally) add to the monthly cost to the point that the ongoing cost of the add-ons can outstrip the cost of Xero itself – certainly something to keep an eye on.
Probably the biggest question I had in switching from Sage is that Xero does not have the facility to back up your data. On the face of it, this seems crazy. However, if you think about it, the risk of data corruption or loss is greatest for Xero itself. You can be sure they are fully focused on protecting and securing our data. Nevertheless, I have found a service that, for a modest cost, backs up my raw data from Xero. I can download this as CSV files so, if the worst happened, I still have access to the core data. In seven years we haven’t even come close to needing the backup.
Summary
There are other cloud accounting systems but I am pleased with Xero and heartily recommend it.
Xero might not have the data-crunching power of a high-end corporate accounts system but nor does it have the steep learning curve or cost. It works for us.
