As family business accountants we absolutely love Xero. The ability to automate low value tasks in bookkeeping and create clean data is a godsend to family business owners around Perth.
Sadly Xero still requires a smart person to run it. And we have seen a raft of bookkeeping errors within our client base. So we thought we would go through a few of them.
1. Not linking all your bank accounts
The game changing technology of Xero was that it linked your bank accounts electronically. So we are still amazed at the number of clients when only one of the bank accounts is linked to the Xero file – it is like buying a Ferrari but refusing to get it out of first gear.
2. Not tailoring your chart of accounts
If you have seen one family business you have seen one family business. The needs of a dental surgery will be different to a photography studio which will be different to a car dealership.
The different businesses will have different profit drivers, different costs, different lending covenants and different revenue streams. So why do some bookkeepers adopt a “standard” chart of accounts with nothing tailored to the needs of the business?
3. Not thinking about how you will handle receipts
A massive benefit with a Xero subscription is that you will get access to Hubdoc – for free. This receipt management tool even has an auto-fetch function so when a receipt is issued to you the software program goes to the supplier, takes the receipt and prefills it into the software.
The program even has the capability for you to electronically file receipts and invoices into your Xero file so you no longer need a big paper filing cabinet.
Even with this free software program we still see a lot of family owned businesses run a paper based system of filing receipts.
4. Not creating a record of what is going on
Xero is all about flexibility. And that can come at a disadvantage – we often find business owners look at multiple reports for the same period at different times and get different outcomes.
Like any process in a business the bookkeeping process must still be accountable. The bookkeeper must still produce a clear and document process that is checked and reviewed. And once the process is done it is stored electronically in the business for future access.
If all of the data is within the Xero program you can potentially get a moving animal that is hard to track down (if something is deleted it is hard to find).
5. Not investing in your bookkeeper
Your bookkeeper is still a person and has a career and aspirations. So successful family business owners will still invest and promote that persons career – engaging the Xero tools of their learning portal and also sending your finance team to something like Xerocon is important for your bookkeeper to keep up to date with what is going on.
If you have a contract bookkeeper this should be done by them – but often it is not. As an owner you should be checking your suppliers and making sure the work they are doing is first class.
6. Not owning the Xero file
If you do not own your Xero file you are potentially creating a problem. Your business data should belong to you. If you have only one record of your historical business data and that is owned by an outsider you could effectively become reliant on that person.
No business should be dependent on one employee or one supplier.
7. Not using the Xero file
Many family business owners have a “front of house” program that runs the invoicing and job management for the business. And while those programs are often great at reporting revenue – the primary business reports, including costs, cashflow, finance and reporting – should come from your total business program (ERM).
Make sure your front of house software integrates with Xero and get full business reports. Do not ignore your costs, profits and balance sheet by only focusing on revenue.
8. Not reviewing permission levels
Xero has the capacity for different people to access different parts of the data. So a sales person processing invoices does not need to see everybody’s private salary or the level of debt the business is carrying.
Quite often we see the users of a data file as woefully out of data (with former team members still able to access) and every person has full access.
Your Xero data is private and you should control who is looking at it.
9. Not reconciling the bank account
This sounds simply and Xero is meant to “automatically” do it. But the process is a semi-automatic process and it is not fool-proof.
Your bookkeeper should reconcile your bank, credit cards and loan accounts to the bank statements. And that process should be checked off by another person to ensure it is done.
10. Not saving tailored reports
If you have some great report templates – the templates should be saved and used to reduce administration time.
Quite often (more often than you would think) we see that the tailored reports are tailored and created every time they are requested.
11. Using cash and accrual accounting interchangeably
Xero can print reports both on a cash basis and on a full accrual basis. Quite often the bookkeeping reports will flip back and forth using the different methods at different times of the year (it is a button on many reports).
12. Not using rules
A great thing about Xero is that it has “rules” as a time saving method so you don’t have to repeat each transaction. For example you can set a rule up so that all bank fees are allocated against the expense item “Bank fees and charges” in your chart of accounts.
Quite often we see that the rules function is not being used or worse – the same rules has applied to every transaction as it was not set up properly.
13. Not looking at the ATO
Your Xero program is sending data to the ATO. This can be through your BAS or through Single Touch Payroll or some other communication process.
Importantly the ATO transactions and the Xero transactions should agree. Your bookkeeper should be checking to see that the payments from the bank account are being received by the ATO.
At Westcourt we love Xero – and we love Xero being used to help commercial families who own business. We can do an introductory 90 minute Xero review of your data file to make sure the data is healthy and clean.
Call us to find out how to start.