Xero or Zero – where does it sit in the cloud accounting sphere?

Margaret Carey - Thursday, April 14, 2011

Last week I attended the Xero Cloud Accounting, Payroll Workshop in Sydney, with thanks to the staff at Xero for hosting this event. It gave it me an excellent opportunity to look more closely at the product and to understand its position in the cloud accounting stratoshere

The number of businesses using Xero is growing exponentially year on year indicating that the Xero team is able to penetrate the SME market that for so long had been dominated by MYOB and QuickBooks. Plus they have managed to get on board a number of accounting practices (a notoriously conservative group) which assists in market penetration as it is that factor that all too often influences the software decision for many SMEs.

The big plus in Xero for SMEs is the automatic bank feeds; Xero now supports 140 different banks and credit card institutions in Australia and others are added on request. (Beats having to download and import bank transactions as you do in QuickBooks) and its this feature that gets the thumbs up from most users and is possibly its biggest drawcard.

The latest addition to product functionality from March 2011 (hence the Xero Roadshows) is Payroll. Xero bills it as ‘Just the thing for businesses with a handful of employees and standard pay run.’ And that’s the catch – a handful of employees – ie 1-4 and a standard pay run – ie same amounts per pay per employee. It is very much the payroll solution you have when you don’t have payroll – it does not calculate PAYG tax, does not maintain leave accruals and does not print year end Payment Summaries. It does allow for overtime payments but if employees are getting varied overtime payments each pay run you would need to look up the tax amount each time. It also calculates the superannuation guarantee contribution (not sure if it considers minimum $450 pm threshold or the upper limit) and does print payslips. There are more sophisticated third party payroll products available that integrate with Xero but there would be an additional cost involved.

When you log into Xero you are immediately presented with the business dashboard so you can see at a glance, the bank balances and cash flow and then drill down to more detail if required which is important for SMEs. However the 2011/12 release of QuickBooks has now not only caught up but surpassed this as you can now tailor the dashboard, based on user security and preferences and set preferences so this is what you see on start up, so my money is on QuickBooks for this versatile feature ow.

The trend in this decade for SMEs is to move computing into the cloud (Software as a Service or SaaS) to avoid the costly overheads of managing IT infrastructure. The big benefit for SMEs when they move accounting software into the cloud is that their bookkeepers and accountants can access the files remotely saving a lot of time, effort and money on both sides. However with this solution, you never actually purchase outright a licence to use the software in perpetuity. You are locked into paying monthly fees, stop the payments and you can no longer update transactions.

From a cost perspective, I don’t think that Xero necessarily wins on price, but I always recommend that price should never be a deciding factor when selecting software. A small price differential whittles down to nothing compared to the cost benefits of ease of use and functionality. Nonetheless at $49 per month which equates to $588 per annum (unlimited number of users), this is virtually the same as a 2 user licence for QuickBooks Online ($295 per user) If you did go desktop and didn’t pay the annual subscription fee, a business can make a one-off purchase of the desktop version of QuickBooks Plus for $650 and never have to upgrade but get a whole lot more functionality (including inventory!).

Xero has already invested more than $30m over 5 years in building the product to where it is today and is continuing to invest so enhanced functionality is likely to be deployed over the next couple of years. But QuickBooks has been around for a lot longer and as such is a more mature and functionality rich product, and it was its high end Enterprise version that is available as the hosted cloud version so you do get functionality that is just a glimmer in the eyes of the Xero developers.

So if you want cloud accounting, have a straight forward business model (no inventory or complex pricing models) and simple payroll requirements and love the direct bank feeds, then Xero could well be the answer. However, if you step outside those boundaries, then you should be considering other alternatives

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