I’ve been banging on for ages about ‘the revolution in accountancy’, largely brought on by technology, and specifically in the realm of bookkeeping software. Being able to operate in the cloud, is a game changer. Anyone who knows the Peloton, will not be surprised to learn that we are reasonably big fans of Xero and I guess there are a number of reasons for that. It’s not that we get loads of discounted products or get bonuses for selling it it’s just that we really like it. It’s easy to use, it integrates with hundreds of 3rd party apps and produces very readable accounts. And when I say easy to use, I mean it’s just obvious. I managed to go through the large part of my accountancy career not understanding how to input data, extract data or read data from Sage. It was so complicated. I used to always ensure there was someone around who could, because without them I was lost. Even I can fully use Xero.
But all that has changed (thankfully) and the new kids on the block like Xero, Free Agent and Quick Books online are taking control of the bookkeeping space. And frankly, I can’t say soon enough. Let’s face it, for a huge number of us, bookkeeping is boring. Chasing little bits of paper around the office, balancing things to the penny, reconciling things, on and on it goes. But the new generation software has brought with it a whole host of automation that simply can eliminate some of the repetitive tasks. Admittedly, some do it better than others so I thought it would be worth a brief review of the differences between Xero and Free Agent. That’s not entirely true, it’s just that one of our contacts was at a meeting recently and the conversation turned to bookkeeping (seriously, it did!) and before he had had a chance to speak some ‘knowledgeable fellow’ piped up – ‘you want to use Free Agent it for businesses, Xero is for Accountants’. Well, needless to say, it got me hugely excited so I thought I would do my absolute best at a non-biased review….seriously.
Now here’s the next confession. I haven’t trawled through both systems working out which is best at what (I understand it’s quite important when you are supposed to be doing a review but I found a quicker way). Google – Haha, but the guy who did the review was a committed Free Agent user so I thought to myself that is one way to avoid bias and I could perhaps make my own mind up from his comments.
He was surprisingly honest and admitted right from the get-go ‘Free Agent is best suited for freelancers, contractors, and micro businesses’. So that’s it. The review is done. Jackpot. So unless you are a freelancer, contractor or micro-business you’d better take a look at Xero…..job done.
OK, what is he saying and why is he saying that? Well, by implication, freelancers, contractors and micro-businesses have very few transactions and therefore the need for masses of automation does not exist and therefore a large number of the features used by Xero will be less relevant. Fair enough.
But let’s look in a little more detail given that not every business is a freelancer, contractor or micro-business.
Firstly, they do a whole host of things the same; here’s some of them – both Cloud based; both do VAT, both do invoicing, and both have open source API (which means that App developers can write stuff that works with either)
But they differ when we start getting into the number of transactions. The most significant of which is the clever tools that Xero has to deal with bank transactions. In effect, it will do one of 3 things. Either it can see that the amount on the bank statement matches another item in Xero (like a purchase or sales invoices) and therefore puts them together; or, it recognises that the last time you allocated the transaction you did ‘x’ with it, and it asks if you wish to repeat that again; or you create a rule that says something like ‘everytime you see a payment (or receipt) to this ‘person’ do this ‘thing’ with it. Over time, the AI in Xero, together with your own rules, will automate a large number of the repetitive transactions saving oodles of time. This means that your bookkeeping (even for a significantly sized business) can be done daily in a very short time.
The second significant difference is when we look at the reports that Xero produces. Frankly, this surely is what it is all about? Yes, we need to get the data in there as efficiently as possible and the huge amount of automation that Xero offers helps with that, but it’s what the data tells you that matters. Right?
I see this time and again when businesses don’t really look at the data. In my mind that’s nuts. And here are two good reasons why. Firstly, what is measured is managed. So if we want to begin to control the finances in our business, and I would rather hope that every single one of us does, we need good reports to help us do that. Secondly, and this feeds directly from the last point, all of us should prepare a forecast for the upcoming year. A forecast that gives us the desired outcome. Otherwise, it’s a bit like going off for a drive without a destination. And unless you want to end up exactly where you started, you are going to have to make a plan. So, financially, it’s just the same. And then you can use to Xero to see how well you are doing. Couple that with financial data that is virtually in real time and you have suddenly transformed your business. You now have near instant feedback of exactly where you are and in a much stronger place to control your business.
So, maybe if you are a freelancer, contractor or micro business, then some of those last points are not so relevant and Free Agent is just fine. But if you run any normal sized business and need to reduce the time you spend bookkeeping through automation, and produce meaningful live reports to help you take control and drive your business then Xero is for you. Not biased, I’m just following what the Free Agent man said.
Call me if you have the slightest query.