Is Xero the Right Choice for your Small Business Accounting?

Xero is one of the most popular online accounting software programs. It costs quite a bit more than some of its competitors, but it has a dazzling array of add-ons that makes it more useful to almost any kind of enterprise. Xero does things that were unthinkable just a few short years ago.

Beautiful Accounting Software

Even if your accountant or bookkeeper doesn’t use Xero it’ll be unlikely that they haven’t heard of it. Sometimes referred to as the Apple of accounting software, Xero’s rapid rise from New Zealand start-up to the clear market leader in cloud-based accounting took many people in the accounting business by surprise. Its intuitive design and first-class user experience continues to drive the development of Xero. Their value proposition of “Beautiful Accounting Software” is a self-evident truth for everyone who has ever used Xero.

1 Million Plus Subscribers

Xero currently boasts more than a million subscribers worldwide, with almost half of them in Australia. A large part of Xero’s success has been its marketing push to accountants and bookkeepers encouraging them to reinvent themselves as business advisers. Whilst this isn’t new, with the bookkeeping process becoming more automated, compliance work is becoming less profitable for advisors. Xero is clearly promoting automation as a bonus to advisors, as it allows them to free up time for higher paid and more worthwhile work.

What Does Xero Do?

The big differentiator with Xero is that it’s the only client accounting software vendor, which also provides a cloud-based practice management suite. Xero does pretty much everything a small business needs including general ledger, billing and expenses, quoting and invoicing and payroll, complete with automated superannuation. Xero includes some CRM functionality, although this is not really a fully-featured part of the product.

Easy to Use Bank Feeds

Bank feeds have been around for a long time now, notably with BankLink. Xero has made bank feeds easier to use and have automated the process through auto-coding rules. This is now a fairly standard feature of all cloud-based accounting software, but Xero did it first.

Wide Choice of Integrations

Xero has been a clear market leader in encouraging the development of linked cloud applications. Their developer community now has several hundred apps available to extend the core functionality of Xero. This makes it easier for business owners to automate certain processes including instant sharing of invoices, contacts and other data. The number of integrations and the functionality they offer is set to keep expanding. Probably dramatically.

Faster Payments

Xero’s online invoicing makes it simple and easy for clients to pay invoices immediately. Xero offers an integrated payment gateway, which provides obvious advantages for most small businesses. The company claims in its marketing literature that the integrated payment gateway has reduced average debtor days across its entire customer base. That’s some claim, but as anyone who has run a small business knows, improved access to payment options tends to improve payment times. Xero gets a big thumbs up for that.

Mobile Applications

One of the most exciting things about Xero is its mobile apps. Users can take photos of receipts with their phones; attach them to expenses and save them to Xero for later approval. The Xero Me app allows employees to submit timesheets, manage leave requests, check their pay details and more. Available for both IOS and Android, Xero Me is a welcome addition for small businesses managing even a relatively small number of employees.

Inventory Management

If Xero has any major drawback it’s inventory management. Xero acknowledges this weakness and recommends that certain businesses should use an app to extend core inventory functionality. This mostly applies to businesses that have:

  • More than 4000 inventory items they want to track.
  • Want to use periodic inventory. That is, they only update inventory at month end or year end, using inventory adjustments to update inventory records.
  • Manufactures goods for sale.
  • Operates with negative inventory, that is, they sell goods before they’ve purchased them.
  • Requires purchase order receipting.
  • Needs to use a different inventory accounting method than average cost, for example, FIFO (first in, first out) or LIFO (last in, first out).
How Much Does Xero Cost?

Plenty of small business owners complain about the cost of using Xero. Frankly, I don’t think that is overly justified. Starting at $25 per month for a business with a single person on the payroll, Xero only costs $100 per month for a business with 100 on the payroll. There are other variables that determine the cost of Xero, but the number of people on the payroll is generally the biggest influence on pricing. Considering all that Zero offers and the time saved over traditional bookkeeping, Xero is extremely cost-effective.

Is Xero the Right Choice for You?

Given the feature-rich nature of Xero, it will be a good fit for almost any small business and many larger enterprises too. One of the best things about Xero is their free 30 day trial. You can try Xero for yourself and see if it’s a good fit for your business, without obligation. Monitor Books can organise a free trial of Xero for your business and make some recommendations to ensure that you’ll get the most from your free trial. Click here to organise a free Xero trial, plus a free initial consultation on how your business can get the most from Xero. It’s easy to use software that you’re going to love!

About the Author Peter Broberg

Peter Broberg is a bookkeeping professional with over 20 years experience in the finance sector. With more than 2 decades of experience, Peter provides payroll and bookkeeping services on a professional level. His services cater to small and medium enterprises in Cannington, Kalamunda.

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