Is Xero right for your business?

Even if every accountant doesn’t use Xero – and there are still many who don’t – it would be difficult to find one who hasn’t heard of the company.

Xero’s rapid rise from New Zealand start-up to market leader in cloud accounting surprised many in the accounting industry.

It has been called the “the Apple of accounting software” and, like Apple, design and user experience have heavily influenced the evolution of Xero’s product.

Hence the tagline, “beautiful accounting software”.

At the time of writing this piece, Xero claims 475,000 businesses as paying customers, 200,000 of them in Australia.

A large part of its success is due to a marketing campaign that encourages accountants to redefine themselves as business advisers.

This is not a new concept, but with Xero and others automating the compliance process, business advisory services are becoming essential to offset shrinking revenues.

Xero’s roadmap reflects these twin trends of advisory and compliance automation, and it has brought a number of innovations to these two areas.

What Xero does

Xero is the only client accounting software company to sell a cloud-based practice management suite.

The accounting program covers pretty much all bases including general ledger, quotes and invoices, bills and expenses, payroll with automated superannuation payments, and some light customer relationship management (CRM) features in contacts and financial reports (soon to be updated).

Xero also brought out the first modern mobile phone applications for accounting software.

Users can take photos of receipts with their smartphones, attach them to expenses and save them to Xero for approval. An upcoming iOS app called Xero Me will let employees request leave, check payslips and submit timesheets (an Android version will soon follow).

Users can also attach sales proposals to invoices within the accounting program itself.

The software’s online invoicing makes it easier for a client to pay immediately through a payment gateway, and Xero claims this has reduced the number of debtor days right across its customer base.

 

"Xero is the only client accounting software company to sell a cloud-based practice management suite."

 

Although BankLink may have offered bank feeds for many years, Xero made them much easier to use and automate through auto-coding bank rules.

It was the first to include bank feeds on the bank reconciliation screen, which is now a standard feature of online accounting software.

Xero also led the way in building a large community of connecting cloud applications.

More than 200 apps now extend the feature set of the base accounting program, making it easier to automatically share invoices, contacts and other data.

This add-on directory includes 15 categories of apps in nearly 14 industries. While desktop accounting software certainly had integrations with other programs, the depth and breadth of the Xero ecosystem sets it apart.

Xero's drawbacks

Xero had long been criticised for lacking an inventory feature, so it added a simple inventory module in March 2015. But if you need advanced inventory control and real-time stock and order management, there are a range of third-party add-ons available.

A vision for the future

Xero stands out from other software companies due to its vision to build something larger than just an accounting program. In 2014, Xero chief executive Rod Drury announced that it had reached “the end of the beginning” with the addition of quotes and light inventory to the software.

The next phase, which Xero calls “Big Data for Small Business”, will draw out data from the accounting program and mix it with data from other sources. These could be benchmarking of similar businesses in other locations, or displaying KPIs in its recently released business intelligence dashboard.

Xero is also using data connections to send invoices from large retail chains directly to the accounting program. Warehouse Stationery, the New Zealand equivalent of Australia’s OfficeWorks, will send an electronic receipt to a small business’s Xero file from the checkout.

Xero has revealed that the stage after this is called the “Financial Web”, but it hasn’t elaborated much on what that will entail.

Cost

The biggest complaint about Xero is the price.

The standard plan with unlimited users and payroll for only five employees costs A$50 a month, nearly double the price of some of its competitors. (To add multi-currency and automated superannuation, it costs A$60 a month.)

The premium plan, at A$60 a month, boosts payroll to handle 20 employees.

Premium 20 (A$70 a month) does 20 employees; Premium 50 (A$80 a month) does 50; and Premium 100 (A$90 a month) handles 100 employees on the payroll. Businesses with more employees can pay A$2 for each one over 100, up to a hard limit of 200.

Employees include anyone on the payroll, so contractors and part-time staff count to the total.

Sholto Macpherson is a journalist and author of the Beginner’s Guide to Online Accounting.