I have worked with Xero since 2011 and whilst it is not the only software we use it has become more popular both with our customers and our bookkeepers. It is user friendly and is generally quicker to work with than traditional desk top softwares.
Whilst there are lots of positives to using the software there are some negatives too which it is worth being aware of.
Because Xero is user friendly and fairly intuitive everybody thinks they can be a bookkeeper. Of course it is not difficult to add invoices and code bank transactions but it can go so horribly wrong if you don't have an understanding of what is happening in the accounts. Allocating a transaction to the wrong code can easily be sorted out, but unpicking a whole load of transactions is a chore.
Using Xero to raise sales invoices is brilliant. They are quickly raised and sent by email with tracking so you know when it was sent and if it was opened. There is a good history by customer and outstanding invoices can also be chased automatically through a simple set up of overdue date and appropriate email. However if chasing is to happen automatically it is important that customer receipts are correctly allocated to the invoice and promptly so that only those customers who haven't paid by the due date are chased. I always recommend that customers raise their own invoices because it is straightforward, can be done promptly and time isn't wasted sending us information to raise the invoice.
Bookkeepers and accountants have knowledge of VAT which many business owners may not have. We often come across transactions where VAT has been claimed on items which do not carry VAT. VAT can be complex and users of Xero who undertake the bookkeeping themselves should be aware of what VAT treatment their income and expenses should have. And if you are keeping the books yourself you will need to keep track of your turnover so you can register for VAT promptly should you reach the threshold for registration.
Entering journals and reconciling control accounts is also an area which bookkeepers are experienced in but the day to day user of Xero will probably not have an understanding of. Journals are not used frequently but they are the standard way of entering weekly or monthly payroll information and year end adjustments provided by the accountant. VAT, PAYE, pension and net wages accounts all need to be checked regularly to ensure their outstanding balance is correct. These are the things that a bookkeeper will always alongside checking the bank reconciliation to ensure the bank balance agrees to the statement. Whilst the bank transactions do feed directly into Xero the bank balance does need to be checked regularly. We have found transactions to be missing on many occasions.
Using Xero is a good choice if more than one person needs to access the accounts at the same time as there is no restriction on number of users or the tasks they can carry out at the same time. However the negative aspect of always accessible accounts is that people who need to access finance reports may not have the most up to date information. There could be outstanding bank transactions to reconcile, journals to enter, invoices to add, adjustments to make and therefore the information they are working with is not complete but because they have any time access they do not know this.
Xero and other cloud accounting software is changing the way businesses manage their accounts. You can save money by doing it yourself but be prepared for greater fees from your accountant if you have got in a muddle and they have to sort things out. They may not even be able to sort it out. .
Over the years I have seen accounts in Xero where there are unreconciled bank transactions going back several years, VAT claimed on items that have no VAT, duplicate transactions, and lots of customer and supplier invoices that have never been paid. Its hard for an accountant to sort this out and one business owner I talked to told me that their accountant never used the accounts he kept because they were in such a muddle but created accounts from his bank statements!
So if you are a business owner wanting to use Xero and do more of your accounts yourself know your limitations and get some training to help you get started on the right track. Have an understanding of what Xero and your accounts is telling you about your business. There is more to accounts than reconciling bank transactions. Keeping accurate accounts shows you how your business is doing, where you are spending your money and who are your best customers. Use Xero well and it will be one of the best thing you can do for your business.