Xero is aimed at smaller service oriented businesses. We’re looking at businesses that produce hundreds of invoices a month, not thousands. By itself it won’t be useful to a business that is tracking inventory or doing job costing, although there may be add-on products that can help in those areas.
Accounting from New Zealand? Will that work in the US? Initially there were some rough spots, both with the kinds of features supported (“What? You can’t print a check?”) and with terminology. However, after they established a solid core of support and sales people in the US, these kinds of issues are no longer a major issue.
There are three major flavors of Xero – I’ll be focusing mostly on the Medium version:
- Small: $19.00 per month per company, useful for very small businesses that have 5 invoices a month and no more than 20 bank statement lines a month. In general, I’m not going to consider this in my evaluation.
- Medium: $29.00 per month per company, good for a business that only deals with domestic transactions.
- Large: $39.00 per month per company, which you need to use if you are working with multiple currencies.
A major point here is that these are per-company prices – NOT per-user. You have an unlimited number of users accessing the file, which is a major plus.
So, here we go, a quick look at Xero. I can’t cover everything, this is just an overview of some features that caught my attention.
Intriguing and Differentiating Features
When I compare Xero to other online accounting products, several features stand out. These are some of the features that I find noteworthy – your list may be different than mine:
- Bank Reconciliation: Yes, it seems that all the online accounting products do this in fun and interesting ways – Xero does it well and has a number of interesting features.
- Xero to Xero: This may not be as important now, but as the user base grows the advantage here will grow with the product. If you work with another company that uses Xero, this can save you time!
- Financial Advisor: If you are set up as the “Financial Advisor” user for a Xero client, there are features that are available just to you.
-
Publishing
Management Reports: This is a refinement of the Financial Advisor feature that I want to point out. I really like this feature!
Bank Reconciliation
Xero can be set up to pull in your bank and credit card information directly from a “bank feed”, or you can import that information from a file that your bank can supply (.OFX, .QIF or .CSV formats). It works best if you use a bank feed.
What you are trying to do is to match your existing transactions with Xero with details in the bank statement. Xero will use three criteria to do this matching, in this order:
- Amount/Reference: If there is a match with an amount or a reference (such as a check number), Xero will suggest a match.
- Bank Rules: You can set up “bank rules” that will recommend a match.
- Auto Suggestion: If the contact name in a bank statement detail has been used before, Xero will suggest that you use the same account information as you used before.
Here’s the reconciliation screen for a sample account (click on the graphic to see an expanded view):
The left column has lines from your bank statement, the right column has transactions in Xero. If, according to the criteria, Xero thinks there is a match, your transaction will be highlighted in green and placed alongside the bank statement line. The first two transactions are suggested matches – note that the dollar amount shows in either the “spent” or “received” columns. Reconciling these just takes a click on the “OK” button.
The third transaction (“SMART Agency”) doesn’t have a suggested match. You can select from the tabs on the right:
- Match to use a search feature to try to find a match on your own. There are features here that let you make an adjusting entry if your transaction varies by a small amount from the line in the bank statement.
- Create a new transaction in Xero for this detail.
- Transfer to manage a transaction that is a transfer of funds from one account to another.
- Discuss will let you enter a note to yourself or to your Financial Advisor if you aren’t sure what to do with this particular statement line – if you can’t find a match, if you think there is an error, and so forth.
Looking at the last transaction (“Ridgeway Banking Corporation”) you can see that the last time you had a statement line for this bank you had coded it to be a “bank service charge”, and Xero is suggesting that this is what you can do this time.
There are a lot of little tricks and small links in this window. You can do a lot, and once you get used to it you can do things very quickly. It might be a bit daunting at first, when comparing this to Wave (for example) you will see that the Xero process is more complicated to operate at first, for anything other than the obvious matches. As you use the system it will learn from you, and things do get easier.
I do wonder if the very small business is going to want to do all of this work, but in that case they probably should be looking at Wave, OR working with a good Financial Advisor who understands Xero.
The Discuss feature is nice. I can see a business owner going through and doing the easy matches, then leaving notes for the Financial Advisor about the transactions that can’t be matched easily.
Some of the details of this feature bother me a bit, but then it is hard to come up with a solid way to cover every possibility. For example, let’s take a look at a transaction that is off by a small amount. On the left is a bank line for $395.00 with didn’t match. I select the Find & Match option, and a list of possible transactions is shown below. I found it – there was a Xero transaction for $396.00 – off by one dollar. How do you deal with this?
One option is to say that this is NOT a match, and I can create a new transaction in Xero. That isn’t what I want to do here – the transaction exists, there is just a discrepancy to account for.
Instead, I can make an adjustment. My options here are very limited – either “bank fees” or “minor adjustment”. I’m not entirely thrilled with this.
“Minor Adjustment” is a Liability account. I don’t think that this is something that I want a user to be able to use. If you select “Bank Fees” you can select any account, which is better. You then have to pick an entity to charge it to. Another annoyance – if I use “Minor Adjustment” I have to enter the value as a negative amount, but in “Bank Fees” I have to enter it as a positive amount. I think that this area can use a bit of an adjustment.
All in all, the Xero Bank Reconciliation feature is very powerful and it provides you with many options. Once you get a hang of it, reconciliation runs smoothly.
Xero to Xero
This is a great feature if you have a customer or supplier who is also using Xero. You can connect with a supplier/partner and have their sales or bill transactions sent to your system without having to re-key anything. I haven’t played with this in detail yet, but it is something that has a lot of potential, IF you work with other people using Xero.
Financial Advisor
Xero is aggressively courting accounting professionals, and they offer many benefits. I’m not going to go into detail on that here (more in an upcoming article) – if you are an accounting professional I strongly suggest that you look into the Xero Partner program.
A company using Xero can invite an accounting professional to be a Financial Advisor, which is a special kind of user account that has special access.
If you are the Financial Advisor user, you have your own menu option that has special features that a regular user doesn’t have access to.
For example, the Financial Advisor has a tab in the Bank Reconciliation section for Cash Coding, which is a feature that lets you quickly reconcile imported bank statements that represent cash transactions that you haven’t entered into Xero yet. It is quicker than using the Reconcile tab.
Publishing Management Reports
This is an extension of the Financial Advisor function that I want to point out, as it is an interesting feature that helps accounting professionals to “publish” a professional looking set of financial management reports for their clients very easily.
In the Advisor tab there is a Management Report section. You can easily generate the 6 reports that are shown in the dropdown list, for a selected period.
Some of the reports have additional tabs that let you customize the specific report. Let’s take a look at an Income Statement, for example.
There are many options for customizing this report. For example, I can add a transaction schedule to show the detail of a particular account. I’ll click on the dollar amount for May 2013 for the Sales account in the report, and a detail window opens. Click on the Add to Report button in the lower left.
Next, I’ll add an account summary for that same Sales account by clicking on the account name in the income statement report. This provides me with a line graph and a month by month summary. Again, I’ll click on the Add to Report button at the bottom.
You can also add footnotes to the report very easily, but clicking on an option by any of the accounts.
The options that you have for adding supporting information to the reports will vary from report to report. You can, for example, add an aged receivables chart to the Aged Receivables report.
Once you have configured all of the reports you will click the Publish button. This summary appears – you can make your last minute changes to titles of reports, and decide which to include.
You can export this report to
Once you are satisfied with the report you can publish it – the report is added to your report menu and it is “locked” so that it cannot be changed.
Is It Perfect? No…
There are always things in an accounting product that can be improved, and Xero is no exception. Sometimes I find picky little issues that annoy me, sometimes it is a major feature that is lacking. Here are a few examples.
Inventory Is Too Simple To Be Useful
There is no inventory control in Xero. This seems to be an area lacking in many of the online accounting products. You don’t have a way, in Xero by itself, to track the on-hand quantity of “inventory items”.
Yes, I know, there is an inventory items list that you can create, but this is a very limited feature.
As with
Navigation Is Inconsistent and Confusing
As a new user to Xero I found myself often wondering where to find different features. I think that they can do a much better job with providing the user a simple way to navigate the product. I spent a lot of time hunting around trying to find certain features (they DO have a detailed help feature, though).
- Sometimes you have “breadcrumbs” that you can use to get back to a place you just left (little links at the top left of the window that show you how you reached this page), but they aren’t always there.
- Sometimes you click on a button at the bottom of a screen (you have to scroll down), sometimes it is a button in the upper right of a screen.
- Sometimes you navigate by a menu, sometimes a dropdown list, sometimes you go to a page full of links.
- There are many nifty features, but you often have to hover the mouse over something to see a dropdown list, or click on a link to get somewhere.
Over time I’ll figure it out, but there is a lot of stuff that is just too hidden for my liking. They need a better, more consistent way of exposing these nifty features to the user.
Tracking Is Inadequate
Tracking is a feature that is somewhat like “classes” or cost centers. It isn’t a job costing feature, though. You can create just two tracking categories with an unlimited number of options within each. Once you set this up then each of your transaction forms will let you choose the tracking category. It’s nice, but it is too simple. We need more than just two tracking categories to make this truly useful.
Looking Forward
Xero has some GREAT features, and for the right kind of business situation it is an excellent product. Xero is aggressively pursuing accounting professionals and provides a lot of features (and support) as they expand into the US market. This has been developed from the ground up to be an online accounting product, so although you won’t see all the features you might expect if you are transitioning from a desktop product, there are a number of innovative features that I like very much. It is relatively new to the US market, and Xero is working hard on fitting the product to what we expect here.
This has been a VERY quick look at Xero to give you a feeling for how the product works.
This post was written by Charlie Russell.