Is Xero right for our business?

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
browser. Xero is the example of software that are classed as Software as a Service (SaaS) and we
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.

2. Accessibility

As the software is a cloud application, it is accessible anywhere. We can use Xero from our desktop
browser. We can use it from our tablet such as the iPad or an Android tablet. We can have Xero on
your smartphone.

This allows us to check your accounting information wherever you are. If you have an iphone and a
signal which allowed us to just go online and check it on your 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 we buy an application which we 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 we 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, we
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.
Even with client who did a lot of work online. The nature of the work was a lot of small transactions
for which got paid very small amounts of money – usually cents. This money was paid through
PayPal. Can able to set up an accounting package to connect to PayPal and this high volume of small
accounting transactions were pulled in, immediately on login, into accounting application. This
really streamlined online operation and made it a whole lot more efficient. So the ability to talk to
other applications can be very useful.

5. Accountant can help us remotely

Xero makes it easy for accountant to access data remotely. Let’s say a client is using Xero, and they
are having a problem. He or she can ring the admin, 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 which then makes the service less costly
for the client if all they need is five or ten minutes of the 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. We won’t be aware of this happening. We won’t have the need to
take backups or store them off site. With Xero we 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 we would
probably do ourself.

7. Functionality

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 Meralco or PLDT, we can set up a rule
that this is a utility bill, and that is normally a subject of VAT of 12%. Every time that comes through,
Xero will let us know it thinks that’s a utility bill with VAT at 12% and we can accept or reject/edit
the suggestion. We don’t have to do any more with it. We set up the rule initially, and once Xero
recognizes that it’s a payment for Utility, it will code it properly. It makes the process of coding at
month end accounting simpler, easier and faster.

What are the disadvantages of Xero?

1. Slow with high number of transactions

There are some disadvantages to Xero. If we are using an online piece of software and if we have a
lot of transactions and/or a slow connection, we may be waiting for a while until the screens re-
build. So if we have a lot of transactions, Xero might not be for us.

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

Only BPI and BDO are accredited to Xero. 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 we log into Xero, the application will tell that we have
these transactions waiting to be posted, and will use its intelligence to suggest to us 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.

3. Cost

Xero costs more than a traditional desktop accounting software. If we use something like QuickBooks
online, we may have bought that for maybe P 65,000 for the license, and we may get three to four years
out of that before we decide to upgrade. So it could cost us only P 65,000 for four years.

Xero typically costs around P 1,500 to P 2,000 a month, so we would be spending maybe about P
24,000 a year on our software, which is a little bit more than we might be used to be spending.

How do we decide if Xero is right for us?

First of all we should look at the number of transactions that we have. If we 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 we have a high number of transactions, it might slow the
process of entering these transactions down when we try and enter them all into the system.

Think about our broadband. Is it fast enough? If it can handle something like Netflix, then it’s ok and
can handle Xero comfortably. If our speed is 1MB/s or less then maybe no.

If we 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 we are using any of these applications, I would
strongly consider looking at Xero.

We would have to be comfortable with .csv files. The banks feeds for us, so what we have to do is use
the workaround mentioned above where we go into our bank account and export our 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 we are not comfortable
doing that process manually, we should probably shy away from Xero

If we do our own books, we will find that Xero will give us a lot of insight into what is going on in our
business. Xero will help us to really understand our accounts. Completing the tasks of entering our
costs and our 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 we understand our 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, a 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.

Alternative applications
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 we are thinking of an online package.