I’ve used Quickbooks Desktop. I’m sure you’ve probably used Quickbooks. I hated Quickbooks.
There was nothing less exciting to me than doing a bank reconciliation – importing my bank account information to my desktop software, importing my credit card statement, trying to make sense of it all and remember where things came from and how to classify certain things. I felt like I could never get a true current snapshot of the business. Sharing income statements with partners who weren’t in the same room as me was never easy. I’d have to export the backup files, email them, and then talk on the phone with them or do a screen-sharing session.
In short, this left me thinking all accounting software was terrible.
Last year, on the recommendation of Micky at Kahuna Accounting – a company that provides remote accounting services – I checked out Xero. It’s the software they use with their clients. I figured that if they were using Xero, it was probably good.
Here’s my review of Xero.
Cloud Accounting vs. Desktop Accounting Software
First, the big thing that separates Xero from traditional accounting software is that it is completely cloud-based. You go to xero.com to log in. Now, you have access to your business’s books. Whether you’re on your office computer, home laptop, iPad, or phone, you can access your account.
Unlike desktop accounting software, where you need to be on a specific machine that has access to your company file, cloud-based software can be accessed anywhere by anyone who has a user account. With cloud software, giving remote access to your CPA is easy. No need to meet in person. Sharing access with a business partner is easy.
When I was on vacation a few months ago, it was easy for me to keep up with our finances while out of the office.
After using cloud accounting, I’m never going back to desktop software. But, that may not be enough to convince you. Here are the pros and cons of cloud software that I see:
- Accessible anywhere from any device
- You always have the most recent version of the software (no need to update every year)
- Can share data easily with CPAs and other people who need access
- You won’t lose your data when your hard drive gets fried, a virus, or hacked.
- Data is not located “on-site”
- Unsure about the real security of data if it’s in the cloud…
I personally don’t need my data located on-site. I don’t think anyone does. For the people who do, I think it’s a personal preference. But, I think that preference hinders your effectiveness. As for security of data – what’s more secure – a system with advanced encryption or your computer that your nephew set up and is constantly exposed to viruses or, if the hard drive crashes, all your data is lost? For me it’s a no-brainer.
One last word on cloud accounting – cloud accounting can get you paid faster. On average, it takes 41 days for a business in the U.S. to get paid. But, using online invoicing / cloud accounting can get you paid nearly two weeks faster, according to a study.
Now let’s check out what Xero has to offer.
Logging in, the dashboard gives a nice overall picture of our finances. It shows the account balances from our bank accounts and credit cards. It shows our cash flow. It’s also highly customizable so I can keep track of any metrics I’d like to track.
From here, I can go look at our income statement, balance sheet, invoices, inventory, and bank statements. It’s got most all of the standard features you’d come to expect from accounting software. But then we’ve got some unique things…
Automatic Bank Feed Updates and Reconciliations
The bank reconciliation is the single most time-consuming bookkeeping task. First you have to import the bank statement. Then you have to go line by line on your revenue and expenses. It’s never fun. But, Xero allows you to automate much of the process. When you sign up with Xero you can sync your bank and credit card accounts so that the feeds are always current. Every day Xero will automatically update with the latest entries. Each week or each month you can then match entries fairly easily.
If you want, you can also create “rules” for certain items to automate the reconciliation process and spend less time doing it manually. For example, if you know that each month you get a bill from your phone company. You can tell Xero – if there is an item on my credit card from Verizon, add an entry for telephone and reconcile it. Makes life much easier especially if you’re repeating the same thing time and again.
Related: Accounting and Tax Tips for Lawyers
Invoicing is a nice feature. It’s pretty comparable to other online invoicing software, except that it’s inside your accounting software. You can send bills to clients, keep track of what you’re owed, and allow them to pay online if you’d like. If your business has physical inventory, you can also keep track of it in invoicing to make sure you still have your products in stock.