Xero is a great software tool for many small businesses. I’m a big fan. But, last week I promised to share the dangers of Xero, so you can make a more educated decision. These are the things we often see go wrong when business owners DIY their books with Xero.
One big advantage of all online accounting software tools is that they connect directly to your bank, and bring in transactions continuously. It saves lots of labor and doesn’t miss anything (usually). However, this means that you will now be more keenly aware of your accounting being not *exactly* up to date. From the demo file, you can see this on your dashboard:
When this says ‘reconcile 29 items’, it’s telling you that your books are not up to date until you click that button and reconcile those items. This can be a mix of income and expense, and it will bring your books up to date through yesterday. What’s great about this: your Xero balance will match your bank balance, so everything is aligned. All is right with the world.
However, if it’s another chore in the way of you making a financial decision about your business (because you cannot stand to see 29 items sitting there), then you need to ignore it or deal with it. Or come to terms that all is never right with the world. (Adulting is a drag).
You should not do your books all the time. It’s a terrible use of an entrepreneur’s time. You need to focus on the activities that make you money, and constantly counting the money is not one of them. So if seeing these sorts of things in your account will drive you mad, then it’s better to have a little less access. Operate from reports and dashboards that are delivered to you when the books are up to date. It’s not always good to play in the weeds. There isn’t any money there.
Yes, gamification is a huge advantage. And, when you work in Xero, you’ll end up on this reconciliation screen often. This is where you reconcile transactions:
While this demo file has these matching perfectly, many businesses have transactions that are the same amount for varying things. How many ways does your business spend $40? (software, gift, reimbursement for meals, etc.). If I were to see green $40 and click ‘ok’, there are many errors that can begin a cascade. Be careful. Seriously. Even on your phone. Slow and careful every time.
The flip side of this fun green-light gamification is that you may never ‘see green’ which can be frustrating. If you don’t enter bills or invoices in the system, then the system doesn’t know what to anticipate. Xero is a robust accounting tool, and direct import of the bank data flow is using a portion of the features any accounting system can do. It’s cash accounting. Xero can do much more, and you need more.
If you want to plan more effectively, you need to enter your vendor bills and client invoices in Xero, so your dashboard can tell you what you owe (and when), and what your customers owe you (and when). As a manager, this helps you make better forecasting decisions. Forecasting decisions are never made from bank data.
Getting your Xero account to help you forecast (and show you green when transactions happen) takes work. Bookkeeping work. Which should not be done by you. Your job is to execute the vision of the operation, reach new heights, bring in profit, retain customers and employees, sell, recruit, train and motivate. It is not to do the books. Let us help. Your books are our vision and execution of our plan. We love bookkeeping!
Barb is the CEO of Fisher Bookkeeping, an outsourced bookkeeping consultancy that provides small businesses with a full-service financial department. Her favorite aspect of work is to break down the accounting to meaningful bits, so entrepreneurs can make a powerful difference in their own business. She's also a power lifter (squat: 215, DL: 270).