Xero, an online accounting and booking software, was created in 2006 by a technology entrepreneur and a small business accountant in New Zealand. It found its way to the U.S., and has been growing steadily, partnering with a number of major financial service providers based like ADP, PayPal and Bill.com. This web-based double-entry accounting system does a lot of things right. In fact, it does some things better than its competitors. Its monthly Management Report, for example, breaks down your company’s most critical numbers in a combination I’ve never seen. You can export reports to PDF and Google Docs format in addition to the standard Excel output. And it offers a separate version for managing personal finances for $34/year.
Xero can’t match desktop QuickBooks Premier Edition 2013 in terms of features, customizability and extensibility, but it’s a solid, credible small business accounting solution that has built an impressive amount of CPA support in a relatively short time on this continent.
Friendly Double-Entry Accounting
Double-entry accounting isn’t pretty. It’s also not intuitive, and it’s unforgiving of errors. Xero developers have done a good job of hiding this complexity and building in a terrific online help system. You can modify the Chart of Accounts and create records, transactions and reports. Every major accounting function is supported: Accounts Receivable and Payable, Payroll and (limited) Inventory Management. Xero covers more ground in this aspect than Wave Accounting and FreshBooks; it even includes a fixed asset management tool.
It’s possible that a small businessperson with no accounting background could run a company’s finances using Xero because you don’t have to deal with the complicated background calculations required. But it takes some study. You’re dealing with bookkeeping concepts that were developed roughly 500 years ago.
For that reason, and to facilitate necessary data exchange, Xero not only allows the users accounting professional access, but the site actually encourages it. Some features—including everything under the Advisor tab—is actually designed for these adjunct users. Still, there’s plenty of self-help available.
A Sparse Framework
Xero excels at orienting new users. For starters, it offers a comprehensive walk-through of major setup procedures, laying out the information that the site needs to get you started and providing space for you to enter it.
Its user interface follows standard Windows/Web conventions, so navigation isn’t difficult. Xero is good-looking, easy to use and fast. If you’ve ever seen desktop accounting software, you may be a little startled by its simplicity, though.
Six tabs run horizontally across the top of the screen, dividing the service’s functions into:
• Dashboard. A quick look at your company’s financial status: your accounts, money coming in, money going out and expense claims. There are links to related screens here.
• Accounts. The heart of your financials. You’ll spend most of your time working within this section’s submenus, since they link to your bank accounts (where you can download statements), accounts receivable and payable, your checkbook, payroll, expense claims and fixed assets.
• Reports. Categorized differently than competitors’: Performance, Cash, Foreign Currency, Pay Run, Position and Detail.
• Advisor. Good stuff here for your accounting professional: journals, Management Report, Sales Tax Report, GL transaction export, etc.
• Contacts. Your contact records: customers, suppliers, employees.
• Settings. Covers ground similar to setup pages. You can return here to modify settings.
That’s it. Xero’s home page looks and works similarly to those found in Wave Accounting and FreshBooks, though it’s perhaps a bit leaner.
Common Tasks
Xero’s innards are as clean and well-organized as its home page. You can view a comprehensive list of contacts—which can be imported in CSV format—or display each type individually. Contact records are more comprehensive than either of its online competitors, and each list and individual record is accompanied by links to related activities and financial information. Neither FreshBooks nor Wave Accounting does this.
There’s more than one place to get to transaction forms, but you can open the Accounts Receivable and Accounts Payable menus to see everything that’s offered there. You can create invoices, credit notes and statements. No estimates (though Xero suggests using invoice drafts as quotes) or purchase orders. FreshBooks offers estimates, but neither online competitor includes purchase orders, which is standard in desktop accounting like QuickBooks.
You can write checks and receive payments through services like PayPal. Xero doesn’t support true online banking—you can only import statements. You or your staff can record fixed assets, but an Advisor (accounting professional) must handle registration, depreciation and disposal of assets. This is an unusual feature in small business accounting. Payroll can be handled inhouse with very capable onboard tools, or you can use one of the services that integrates with Xero, like ADP.
Reports, Items and Unusual Phrases
Xero’s reporting functions, which get a tab of their own, are fairly unremarkable, but the service offers a few more boilerplate reports than competitors, and they’re a bit more customizable. You can create inventory items, which do not get their own tab, under Settings. The three online sites reviewed here do not let you record items in much depth, and with the exception of FreshBooks, they don’t even track inventory levels.
Xero is an international accounting solution that originated in New Zealand, and overall it works quite nicely for U.S. businesses. There are just a few areas where concepts and organization of tasks are a bit different. This may not have anything to do with Xero’s country of origin; double-entry accounting can be translated into software in a variety of acceptable ways—and it is.
To enter and pay a bill, for example, you process an accounts payable invoice, as opposed to what we generally consider an invoice (accounts receivable). “Expense claims” are broken out as a separate function, where accounting software and sites usually make funds owed to employees an expense category and/or account. What QuickBooks and others call “classes,” Xero calls “tracking.” Nothing major—just a little quirky.
Puzzling Pricing
Xero has several other things going for it. It integrates with an impressive number of add-ons, though it can’t compete with Intuit’s App Center. You can invite users—including your accounting professional—into the service with limited permissions. There are six levels, ranging from Read-Only all the way through full system administration. You can also grant Xero Customer Care access to your data for 14 days, which allows them to troubleshoot problems. There are mobile versions for both Android and iOS.
I’m a little perplexed by Xero’s pricing structure. After the trial period, you can choose from among three levels. All offer full functionality with just a few limitations. The Small plan ($19/month) limits you to five inbound and five outbound invoices and to reconciliation of 20 bank statement lines per month rather stingy for even sole proprietors. Medium ($29/month) offers hundreds of invoices per month and bank transactions per week. And Large ($39/month) adds multiple currencies.
Xero seemed rock solid to me during my testing. I’d be happy to see a more comprehensive, customizable Dashboard, and item-tracking at the level FreshBooks offers. As for tools like purchase orders and trackable inventory, we’ll see where Xero goes from here. QuickBooks Desktop Premier, though, remains the real workhorse in this class of software, and the Editors’ Choice.
Original Article by Kathy Yakal
