We’re going to be honest, we’re HUGE fans of Xero. Last year at the 50% larger Xerocon event we heard all about the incredible changes coming to this brilliant piece of accounting software.
Gary Turner, co-founder and managing director of Xero, said something poignant about Xero when he opened the phenomenal show in London last year. Gary emphasised Xero’s focus on the smaller businesses and Xero’s goal of helping them to grow and thus – change people’s lives!
He asked “What can be more enjoyable than that?”.
What a great mission for a company to have!
We love helping SMEs get to grips with their accounting and Xero has certainly made accounts more accessible, more consistent and dare we say – fun?! Xero has made some pretty great businesses into greater businesses and that’s all down to the better focus the businesses get on their core data and their numbers.
Knowing your numbers is hugely important and we thought we’d share the most important parts of Xero right now for small to medium businesses to get into. Get these areas right and you’ll be off to a great start in 2019 and throughout the year.
Get to grips with Xero with these six key areas…
1. Reconcile daily
One of the many reasons Xero has such a strong reputation is the simple way it gently helps you to stay up-to-date and working on ‘live’ accounts, not old or incomplete data. Working on your accounts daily and reconciling your books is a great business discipline to get into and Xero makes that really simple.
With the bank feeds hooked up, Xero pulls in all your spending and payments into your bank accounts on Xero, leaving you the simple task of reconciling them with invoices or bills or looking into creating some to match them up.
Daily reconciliation of your accounts keeps you focused on your money and it means your accounts are nearly always in the best possible state for an accountant to do your tax or VAT returns. Crucially, you can always see where your business is and how it’s doing.
2. Debtors – aged receivables report
Another great feature of Xero is keeping your main enemy to success in business at bay – cash flow!
Improving your cashflow is paramount if you’re to grow and be successful, and one of the simplest ways to do this is to get paid quicker.
Xero invoices come with an inbuilt debtor chasing system that you set to chase when your credit terms are reached. Set your payment terms from days to months and then let Xero email chasing reminders that you write once. It’s a really helpful way to encourage prompt payments. You can of course turn them off for individual clients should you feel the need.
One area we wanted to point you towards was you Aged Receivables found in your reports dashboard. In here you’ll find money owed to you shown month-on-month with options to increase this period should you need to.
Keep an eye on this report and chase those who owe you outside the automated email system too – it’ll really help your cashflow.
3. Creditors – Aged Payables
The counter to that report is obviously who you owe money to and that’s equally as important. Xero will show you the past few months once again with the option to increase it. The report will show the total you owe in the given period and then break it down month-by-month to show you how you’re doing with paying your suppliers and give you another angle on your business cashflow/debts.
A good idea would be to check this weekly or monthly to ensure you’re keeping your end of the bargain but also making sure you’re aware what you owe as well as what you’re owed and have in your bank account.
4. VAT return
If you’re a VAT registered business then the VAT return is an important area to have a firm handle on. Knowing what you owe in VAT at any given time is really easy with Xero as the VAT report is live and based on your accounting choices. If you’re on cash accounting for example, the VAT shown to be owed will only be the VAT you’ve collected.
The VAT report can be added to your watchlist on your main dashboard to keep you focused on the VAT you owe and in many cases this can help you know how much money you should be keeping back, or moving to another account for safe keeping until you need to pay it.
5. Profit and Loss
Your profit and loss report (P&L) is an important report which is the go-to place to see how you’re doing in business. The report is simply a status report on what you’ve turned over, what it cost you (cost of sales) and then your administration costs. This then gives you your profit for the given period.
Xero allows you to show this as the current year for an overview of how you’re doing, your current quarter, or even the month you’re in right now. If you click through to the report settings you can even compare different periods against each other.
The most successful businesses will use the P&L report to show how they’re doing but also to help them determine whether they can expand, do more marketing, or hire more people. This helps you make growth based and business-changing decisions!
6. Balance sheet – show you’re solvent
The final report to know about is your balance sheet. The balance sheet shows you what your company is worth but also, on a big picture view, how you’re doing on the whole.
The report shows you your Assets (banks accounts and fixed asset value) and your Liabilities (money you owe, tax provisions and pensions etc.) and then gives you your Equity balance.
This is a go-to report to find out how your business is developing and where you’re at right now. You can compare to different periods here too, just like the other report.
Stay on top of your numbers…
There are loads of great reports in Xero and many of them have had an update recently, but those are the first six to get to grips with.
Here’s what you need to do:
- Reconcile daily
- Keep an eye on who owes you money
- Know how much you owe
- Make sure you have the cash aside for VAT
- Manage the bigger picture in your business with P&L and your equity figure.
With these reports and actions you’ll be in a better place to make business-changing decisions and closer to Gary Turner’s and Xero’s vision of changing your life for the better.