Despite these both being well-known packages, there is a revolution going on in small business accounting. So much so that I am predicting the end of bookkeeping as we know it within three to five years.
To understand why, you need to know that there are basically three types of business which have accounting transactions to record.
Firstly, the ‘have-a-go-hero’ business owner who hands in a box or envelope of ‘stuff’, usually with a bank reconciliation Excel file which has taken huge amounts of time to put together in an attempt, usually in vain, to reduce the accountant’s bill.
Next up is the business whose records monitor how much it is owed and how much it owes. Often Sage or QuickBooks is used to prepare invoices, and supplier bills are input by a bookkeeper.
Lastly, a more enlightened group of business owners will use their accounting records to monitor profitability on jobs, contracts, customers or departments, knowing that the extra investment in doing so is well worth it.
What they all have in common is information from a supplier or a bank being recorded manually somewhere.
New cloud-based accounting packages are enabling huge levels of automation, and in my opinion, Xero is the best. At the time of writing there are over 200,000 users and the company is valued at $2.2bn - that’s bigger than Sky!
Why is it becoming so popular? Give Xero your online bank details and it will feed the transactions into the bank reconciliation, meaning that transposition errors become history. When a customer pays, or you pay a supplier online, Xero highlights the
transaction to be reconciled. Regular electronic payments can have ‘bank rules’ which apply them to the right account automatically.
The mobile app allows staff to e-invoice customers whilst out on the job. While not all of your customers may have an email address, and you may be terrified at the prospect of your staff invoicing, a little training and a good process can lead to quicker debt collection, and significantly lower admin costs.
The app can also record staff expenses with a photo of the receipt, thereby massively reducing the admin effort, with a copy attached in the system.
Xero has two levels of ‘tracking category’. If you want to know how much business comes from ‘townies, westerners and the east’ you can - and if you also wanted to review new or repeat customers in each area, you can do that too.
What’s really phenomenal about Xero is the number of ‘add-ons’ being created. The itunes app store has developers constantly writing bespoke applications and so Xero has a huge number of add-ons, one of which will have been written for businesses in your industry.
One of these allows supplier bills to be automatically posted; another makes direct debit for small Jersey businesses a reality.
But what’s really exciting, for a financial director at least, is that we can now integrate website databases (through application programming interfaces) with the accounts, and Google analytics, to provide useful up to date reporting and analysis.
Of course, if the internet goes down then you can’t use the system; but then if the internet goes down, it’s the end of civilisation anyway!
Bookkeepers beware – software, and the internet, are coming to get you!