2012 Review of Xero Online Accounting

Xero, Inc.
www.Xero.com
800-411-9376

From the May 2012 review of SaaS Small Business Accounting Systems.

Best Fit: Xero is best suited for small companies who need cloud-based collaboration with banking integration and support for multiple currencies. The rules-based transaction classification engine is a possible game changer for entry level accounting software.

Strengths:

• Bank integration with Yodlee supports many, but not all deposit and credit card accounts
• Bank reconciliation rules simplify the classification of routine transactions
• Software facilitates a collaborative model of accountant/client interaction with tools for automating the bank reconciliation process
• The product does not track inventory values, although there are a number of third party solutions which provide this capability.
• Although Xero has over 200,000 users, the U.S. version of their product is less than a year old. As such, the reporting and localization of the user interface is still maturing.
• While the company has interfaces for developers, there are still some needs which are not met with the current offerings in the add-on directory.

New for the 2012 review, Xero has launched a U.S. version of their product and is led in the U.S. by entrepreneur and former Sage veteran Jamie Sutherland. Xero is a publicly-traded company from New Zealand, and offers versions of its software for the U.S., U.K., New Zealand, and a generic Global version.

Xero is a client accounting application which has a goal of “zero data entry” by the accounting professional. It has has differentiated itself from the other SaaS accounting products in this category by providing an easy to use online accounting solution which provides tools for automatically importing, classifying, and reconciling transactions from the company’s bank accounts. Since this feature could have a significant impact on our profession, we imported and classified two months of transactions from business bank and credit card accounts to see how well the feature operated in practice. We were very impressed with this feature, and hope more software companies will integrate this type of automation into their products.

Basic System Functions

Xero has a new company wizard which assists users in setting up accounts for a new company. The wizard guides the user through the selection of a service plan, entry of the company’s payment method, and the configuration of the chart of accounts and beginning balances. Unlike many competitors who offer industry-specific charts of accounts, Xero offers only one sample chart of account for new users. Advanced users can export the chart of accounts to Excel, edit the descriptions and numbers, and then import the listing back into the software. The product is supported in most browsers, and this support extends to the mobile website for Xero, which is known as Xero Touch (https://m.xero.com).

The Xero interface is very clean, and is laid out logically. Companies can set up a customizable dashboard showing key account balances (e.g. Sales, Expenses, A/R, A/P, Cash, and Line of Credit). Xero can be configured to download any transactions which are processed by financial institutions, and then reconciled using the Xero application and any user-created rules.

Core Accounting Capabilities

The software and related reporting has been effectively revised to reflect U.S. GAAP, and it is clear that the Company has made a significant investment in the U.S. Edition of Xero to accomplish this goal. Xero supports state sales tax calculations as well as GST/HST for those doing business in Canada.

The product does not support payroll calculation, although payroll transactions can be entered using a check or a journal entry. The Company plans to have a solution which will permit import of payroll service transactions into Xero in the near future. The product’s audit trail is always active, and cannot be disabled, purged, or modified by end users.