Using any accounting software will take some learning. However, the benefits of using it far outweigh the potential struggles of learning how to do it. So let’s take a look at ways you can improve for Xero specifically.
If you compare using a spreadsheet to using Xero, it’s like riding a bike versus driving a fast car. Yes, the bike will get you where you want to go, but the car will get you there faster!
The biggest way is through the direct bank feed. When you start setting up your Xero organisation, one of the first steps is to connect your bank. This brings in a copy of the transactions in your bank account. I know some people are worried that Xero has access to their bank account. However, Xero can’t actually do anything in your bank. It can’t spend any money or move money around or anything like that. It just displays a copy of every transaction that is in your bank.
When you automate importing all your bank transactions, you can ensure nothing gets missed. You won’t forget about that purchase or miss that sale you made the other week. It means you’re much less likely to make mistakes. It also eliminates a lot of manual data entry. You don’t have to type in that you spent £10 at TG Jones yesterday because it’s already on there. And this is just one of the ways that Xero can help you save time.
Hubdoc is free software that connects directly to Xero. You upload your receipts via the app, email or direct upload. It will then read the document for you and automatically fill in the information that is needed in Xero. So if you uploaded a photograph of a receipt, it would fill in the supplier name, the date and the purchase amount. This saves you from having to manually type in all that information.
The only thing left for you to do is choose what category the purchase was for, i.e. stationery or materials, etc. If you’ve bought from the same company before, it will automatically fill in the same category as last time. So you only need to do something if it needs to be a different category this time. The last step is to just send it through to Xero and reconcile the purchase with the bank. This means you now have paperwork attached to your transaction, and it’s already in the right category. Talk about a time saver!
Using software is not as simple as the adverts will have you believe. And whilst you can always fix mistakes, it could end up costing you more in the long run. So sometimes it’s better to get in touch with an accountant or bookkeeper right from the start. They can help get your Xero account set up correctly so everything works as it should.
There are two other main reasons to get a bookkeeper or accountant:
If you’re run off your feet just managing your business, outsourcing your accounts is a great option. You can hand it over to an expert and get your time back to focus on what you need to.
If you don’t understand all the different VAT rules, or what allowable expenses are, etc., then getting a bookkeeper or accountant is a very wise investment. They’ll ensure you’re claiming everything you can whilst also not claiming things you can’t. And they’ll do all this in your Xero file, so everything is in one place.
Setting up the bank feed in Xero is very simple. Head to the accounting menu and bank accounts. Click to add a new account and log in to your bank. Choose what date you want to start importing your transactions from, and you’re all done.
Xero pulls a copy of all the transactions on your bank statement into your account. But that’s where it ends. You then need to explain what every transaction in Xero was for. It will have a guess, and over time, those guesses get better. But they are never perfect, especially for things like purchases from Amazon or eBay. Xero has no clue what you actually bought. Similarly, it can’t tell the difference between you refunding a customer and you buying something. So you will need to manually enter some details.
For every line in your bank account, you need to tell Xero who the supplier or customer was and what category it should go into. If you’re using cash accounting, you can do this directly from the bank feed. If you’re using accrual accounting, you’ll need to use invoices and bills in Xero so that you can enter the dates correctly. You can speed this up and reduce manual input by using software like Hubdoc or Dext.
Once you’ve categorised every transaction in your bank, you should check that the balance in Xero matches the balance in your bank. If they match, fantastic. If they don’t, check that you’ve not accidentally deleted a line or manually put in additional lines that shouldn’t be there.
One of the great Xero bookkeeping tips is to set up bank rules. This is where you tell Xero that if a certain purchase appears, it can put it into this category, for this supplier. It saves you from having to type in all the details every time. All you’d need to do is click OK on the bank screen in Xero. However, you should only use this feature for places where you can only buy one thing. For example, all Royal Mail purchases would go to postage, so you could set up a rule for that. But purchases from Amazon, where you can buy anything from apples to zebras, you wouldn’t set up a rule.
You can also use rules for sales and transfers between your accounts (like from your bank to PayPal). And you can still attach your paperwork to the transactions, too. The only time you need to be careful is if you’re VAT registered. This is because there can be different VAT rates on items, and you don’t want to accidentally put the wrong rate because of a rule you set up. For example, your postage could be 20% VAT, or it might be exempt, etc. If you set up a rule that puts all postage through as exempt, you could be missing out on claiming the VAT back.
If you’re using Xero for your bookkeeping already, it makes sense to create your invoices in Xero too. It’s a great way to keep all your paperwork in one place. So let’s look at some ways you can make it even easier.
Before you send out an invoice for the first time, you want to set up a template. This will make your invoices look much more professional. Head to the sales menu > sales settings > invoice settings and click to create a new branding theme. Here you can add all your details, including your logo and branding.
Once you’ve created an invoice for a customer, Xero remembers what you put on it. So the next time you go to create one for the same customer, you have the option to “add last items”. This is great if you often invoice for the same items, but not at set times (see below for a better option).
The final Xero hack that every small business owner can do is to use online payments. This will enable Xero to add a pay now button with your invoice that customers can click on. It will take them to a payment screen, and they can pay your bill straight away. It reduces a lot of friction in the process for your customer. You just need to set up something like GoCardless, Stripe or PayPal and connect to Xero.
If you’re going to send the same invoice to a customer regularly, then it makes sense to use repeating invoices. You can find the option in the dropdown menu on the invoices dashboard. Once you’ve set it up, Xero will automatically either email it out, save it as a draft or save it for approval (depending on which option you chose). This saves you from having to write a new one every time you want to send one out.
A quick Xero tip is to set up invoice reminders. This will automatically email your customer if they haven’t paid you. You can find this button on the invoices dashboard. Click it, and you can choose when to email and how often. It saves you from having to manually chase non-paying customers.
Xero is designed to try and suit all businesses. However, you know the phrase “Jack of all trades…” That means that for every business, there are probably some accounts that you want to add in.
You can find the chart of accounts in the accounting menu. This lists all the accounts that are currently in Xero. Click on add account and you can add as many new options as you want. Don’t go crazy with it, though! Key ones for e-commerce businesses are expense accounts for the fees for all the marketplaces you sell on. For example, Etsy fees, Amazon fees, NOTHS fees, etc. Splitting it out like this means you can easily see what each platform is costing you.
To go with those fees accounts, you might want to split out your sales accounts too. So you could add in new ones for Etsy sales, Amazon sales, Website sales, Market sales, etc. This helps you see where you are making the most sales. You can use this information to see if you want to increase what you’re selling on one platform. Or you might want to ditch that platform if it’s not performing well. You can also use tracking categories to do a similar thing. But I find it easier to see your income and expenses if you split them out into different accounts.
If you’re a small business using Xero, you might be able to get away with exporting statements from your selling platforms manually. Once you’re growing well, or you don’t have time anymore, you will want to start looking at other options. You can link your selling platforms via software so your sales and fees feed directly into Xero. Examples include Dext Commerce, A2X, Link My Books, etc. These are great accounting tools to minimise errors, speed up reconciling and generally improve your bookkeeping.
Whether you’re brand new to Xero or you’ve been using it for years, there will always be a time when you make a mistake. We’re all human after all! The good news to remember is that there is nothing that can’t be undone. Even if you delete something, you can always reupload it or add it again. Nothing is final. That being said, there are some ways you can speed up finding and fixing your mistakes.
This is a brilliant feature to fix multiple errors at once. You can find it in the accounting menu. Say you suddenly realised you had put all of your receipts from Royal Mail into accountancy fees. Simply go to find and recode, and add in Royal Mail as a contact. It will show you all the transactions against Royal Mail. You can select as many as you need to and then choose whether you want to change the contact, account or tax rate. It’s as easy as that!
The other software that I use with my clients is Xenon Connect. This is a great tool to use to pick up any potential mistakes. It checks hundreds of different things, such as inconsistent VAT rates, expenses that should be fixed assets, duplications, etc. There are so many things it checks that I can’t list them all here! But it is brilliant at being a second set of eyes on your accounts.
Ell Evan Bookkeeping are not Tax Advisors and so our advice and suggestions on the application of tax rules cannot be construed as tax advice.
