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Bookkeeping Using Xero

Oct 12, 2017

Bookkeeping Using Xero

Invoicing clients can be a tedious time consuming task for tradesmen so less time spent on this task the better.
Xero has emerged as a favourite software package for tradesmen. For around $55 per month you can automate your invoices. If you have an online shopping cart Xero integrates with Stripe which is the perfect payment gateway.

Some background on Xero

Xero went public on the New Zealand Exchange (NZX) on June 5, 2007.
By choosing the NZX instead of investment from Silicon Valley they avoid pressure to sell to a larger competing company.

The company focussed on New Zealand initially and then expanded to other markets like Australia.

Reasons Xero Accounting Software may suit you

all plans support unlimited number of users
no long term contracts
you can downgrade without any cost penalty (change to cheaper plan)
cross industry acceptance and integration (refer below)

Xero Features - Editing the Dashboard

Dashboard is customisable [Edit Dashboard] 1:40 in video below
Toggle on and off different elements
Move elements to a logical location

Xero Features - Open Bank Account

Your bank account can be automaticly connected to your software 4:35 in video below
Pulls transactions from a bank account and puts them into a list for you
Xero displays what it thinks is happening - you can correct that [tell Xero what each transaction is - who what why]
Aligned with tax categories
Uses AI to make future decisions saving time (learn remember and suggest)

Xero Features - Invoicing

Can change the starting invoice number 12:30 in video below
Preview the invoice
Import your own logo
Includes GST in pricing
Email via Xero and cc yourself
Can print a pdf
Can add an attachment like a photo

Xero Features - Quotes

Enter Customer 17:00 in video below
Set yourself up as a test client to test your quotes
Quotes can be accepted
Import your own logo
Create templates

Xero Features - Bills

Can pay bills 19:50 in video below
Enter a reference number
Automatically allocate that bill to the correct tax category
Can reconcile with bank

General Rules with Xero

Bank reconciliation 1st Reports 2nd

A bank transaction can only be included in a report if it has been reconciled first.

Reports

Profit and loss report

All of your income and all of your expenditure for a specific date range.

This is very good for a summary of your overheads. It is your net operating profit you pay tax on.

Balance Sheet

Balance sheets are a good indicator of people who owe you money, who you owe money too and your assets like computer equipment, tools of trade etc.

Aged receivables

Shows who owes you money at any given time. Hence if you have a number of sales but your cash flow is not great, this is the report to use to identify this.

You can create a statement (within 3 clicks) for a specific customer that lists all of their invoices unpaid (it can also include invoices they have paid).

Xero Integration

Company's like Reece offer Xero Integration with their maX online business management system.
There is a complete developer integration guide for Xero.

Point of Sales POS can also be integrated into Xero
From Xero API-:

"We've gone for an approach that focuses on getting your sales information into Xero by summarizing sales for each payment type so, if anyone needs to revisit their daily sales figures later they are clearly labelled in Xero for easy cross checking with your POS system."
Xero Manual

How does your business compare?

Key expenses depend on your industry but are typically along the lines of rent, wages, cost-of-goods and marketing. The ATO provide details on various industries called Small Business Benchmarks. These provide an interesting insight into expenses.

"Most small business owners I meet never look at key expenses as a % of turnover and yet getting this ratio right is the make or break of your business in many ways."
Jeannie Cloud 9 Bookkeeping

Timber Floor Sanding

Tax return – other benchmarks for 2015–16

Benchmark range	Annual turnover range
Benchmark range	$50,000 – $100,000	$100,001 – $200,000	More than $200,000
Cost of sales/turnover	20% – 28%	21% – 28%	22% – 33%
Labour/turnover	21% – 31%	19% – 27%	21% – 29%
Motor vehicle expenses/turnover	7% – 10%	6% – 8%	3% – 5%

Printing

Tax return – other benchmarks for 2015–16

Tax return – other benchmarks for 2015–16
Benchmark range	Annual turnover range
Benchmark range	$65,000 – $200,000	$200,001 – $500,000	More than $500,000
Labour/turnover	18% – 30%	17% – 28%	21% – 30%
Rent/turnover	8% – 13%	6% – 10%	4% – 6%
Motor vehicle expenses/turnover	3% – 5%	2% – 3%	1% – 2%

Painter

Tax return – other benchmarks for 2015–16

Tax return – other benchmarks for 2015–16
Benchmark range	Annual turnover range
Benchmark range	$50,000 – $150,000	$150,001 – $600,000	More than $600,000
Cost of sales/turnover	13% – 19%	15% – 20%	15% – 22%
Labour/turnover	22% – 32%	28% – 40%	36% – 48%
Motor vehicle expenses/turnover	7% – 10%	3% – 5%	2% – 3%

Landscaping

Tax return – other benchmarks for 2015–16

Tax return – other benchmarks for 2015–16
Benchmark range	Annual turnover range
Benchmark range	$50,000 – $200,000	$200,001 – $500,000	More than $500,000
Cost of sales/turnover	20% – 34%	27% – 38%	30% – 42%
Labour/turnover	18% – 28%	19% – 29%	23% – 34%
Motor vehicle expenses/turnover	6% – 10%	4% – 6%	2% – 4%