Accounting software for small businesses

Is Xero The Right Accounting Software for Small Businesses?

7 January

Jamie Allen

At the risk of being on the receiving end of the ire of the Xero fanbase, I wanted to write my thoughts down about accounting software for small businesses, after becoming a little frustrated at a post I saw on LinkedIn recently.

A gentleman posted a question asking accountants for some assistance on the best way to reconcile supplier statements to invoices. In fairness, he did receive some helpful responses suggesting formulae-based methods in Excel, Auto-entry or more automated solutions (such as our own). Now these solutions, I felt, were helpful and directly answered the gentleman’s question, but other recommendations simply suggested “Use Xero” which I found to be vague and not targeted to answer the question at hand. This reflects a worrying trend I have noticed recently on some accounting forums where accounting software Xero is becoming a stock answer to solving any/all accounting issues.

As far as I am aware and having checked the Xero functionality, you cannot directly reconcile supplier statements in Xero. See link below:

I would like to add, before I am lambasted by Xero lovers, that I think Xero is a fantastic product, which would be a perfect fit for many, many businesses. It has a truly excellent App marketplace offering many great integrated systems, including Autoentry, which could potentially have solved this gentleman’s problem. It may or may not be the best way to do it but there is often more than one good way to achieve something. We also have many clients that use Xero and work with it very happily, but we recommend this as a solution only after considering their business model and requirements, and do not consider Xero to be a one-size-fits-all solution.

So, with this article I wanted to try and provide some scenarios where Xero might not necessarily be the best accounting software for small businesses and, in the interest of balance, add some where it might:

Period Accounting:

In Xero, as with some other accounting systems, the date of a transaction automatically denotes to the financial period based on your financial year settings. So, for a standard company with 12 months, this normally works perfectly well. It can mean that if you have already reported for a period, you have to adjust a transaction date so that previously reported figures do not change. This is not strictly correct for VAT purposes but we often find that the differences are negligible so do not cause too many issues.

I am aware that Xero has the functionality to open and close periods to help with this and can also run a report for any period of time you wish if you have an extended year. However, in my opinion this is not an optimal solution for some businesses and there are other options on the market at the same price point which have a separate field for the accounting period. This means you can keep the original transaction date but simply select the appropriate accounting period. You can also have anything from 1 to 54 periods if you wanted to report on a weekly rather than monthly basis. This is most common in industries like retail or hospitality where you may wish to have a 4-4-5 week or 13 4-week configurations.

Multi-Currency Consolidations:

If you are a multi-national group, you may have individual companies that report in their local currency that you need to consolidate in the group currency. This could be for compliance purposes or simply because it makes it easier to review and manage business performance if all your reports are in the same currency. At the moment, Xero does not have the ability to prepare a Trial Balance (your accounts) in two currencies for one company within the same set of records. I would add that there are solutions on the UK market at the same price point as Xero that can have a local currency Trial Balance and Group (or additional) Currency TB based on the same set of data without needing to use an add-on. I am aware that add-on reporting apps such as Fathom will handle this consolidation aspect for you, but this requires spending on an additional application.

Tracking Category Recommended Limits:

If your business would like to track departments, profit centres or projects, Xero has tracking categories which you can name based on your preference. For many businesses, these will work very well however, they have a recommended limit of 100 options per category type. If you have more than this, it could cause issues with running reports. There is an option to reuse/rename categories so it would potentially only cause issues if you needed more than 100 ‘live’ categories in a short space of time, but this would be a workaround. Also, the legacy data would show incorrectly under the new category name so this would have to be kept in mind as you look back on historic records.

It is also only a recommended limit and I am sure that many users will have gone beyond this and the system has continued to work fine. But all the same, I think it is prudent to consider the recommended limits of a system as advised by the provider.

Number of Bank Accounts/API Limit:

Like the number of recommended Tracking Categories, Xero also has a recommended number of bank accounts/transactions per company. I would add that Xero has by far the most extensive offering for bank integrations/open banking feeds and the work they have done in this area is truly excellent compared to some of their competitors. Based on responses from their help-desk, they have recommended a soft limit of 25 bank accounts and 1,000 transactions per month, per company. There is no written limit, but this is what we have been advised.

If you have an application in your business that isn’t currently part of the Xero Marketplace and you are unable to change it but wish to integrate it into your accounts, there are also limitations to the way Xero has set up their API which can make this tricky. You may make a max of 60 calls every 60 seconds up to a max of 5000 calls per day. You could batch calls and there are technical ways around it but this limitation still exists and, should it affect your decision making, there are alternatives that don’t have these.

As mentioned, a handful of areas where Xero would be well suited to your business and functionality as ‘best of breed’ would be:

·       User Interface:

o  Xero is extremely easy to use and understand.

o  Useful company dashboard highlighting key business areas and tasks.

o  Good range of clean & understandable reports.

o  Easy to collaborate with your accountant

·       App Integrations: Xero really has a fantastic App Marketplace covering:

o  OCR: Receipt Bank/Autoentry/Hubdoc etc.

o  Reporting: Fathom/Spotlight/Futrli/Fluidly

o  Payments: Transferwise (now free of charge)

o  Collecting Monies: GoCardless/Stripe

o  Debt Collection: Chaser

o  Project management: Workflowmax

o  Stock: Unleashed

o  Payroll and Expenses: Xero Payroll, Expensify

N.B there are many more great apps not mentioned here, these are just ones that spring to mind.

·       Bank Integrations: Xero have a great range of integrated banks using OpenWrks or their own Integrations.

In summary, it is highly likely/probable that most businesses in the UK would be completely unaffected by the above and, to reiterate, the purpose of this article is not to take anything away from the Xero product. They have really inspired a lot of positive change in the industry and pushed accountants to improve their service offering successfully. We have hundreds of clients using Xero and would happily recommend it to other clients in the future if this was the best fit for them.

However, as part of their success, many accountants have taken to selling Xero for the benefit of both parties and as such we would simply encourage businesses to seek a qualified opinion with factual reasoning as to whether Xero is the right accounting software for small businesses. If you would like to know more or discuss, please do not hesitate to contact us at

Frequently Asked Questions (FAQ)

How can accounting software benefit my small business?

Accounting software streamlines financial tasks by automating processes like bookkeeping, invoicing, and expense tracking. It offers real-time insights into your business’s financial health, simplifies tax preparation, and reduces the likelihood of errors, ultimately saving time and improving accuracy.

Is cloud-based accounting software safe for small businesses?

Yes, most cloud-based accounting software providers prioritize security measures. They utilize encryption, secure servers, and regular data backups to protect sensitive financial information. Always opt for reputable providers with a track record of strong security practices.

What features should I consider when choosing accounting software for my small business?

When selecting accounting software, look for features such as invoicing, expense tracking, bank reconciliation, tax support, customizable reporting, and scalability. User-friendliness, integration with other business tools, and customer support are also important factors to consider.

Can I access my accounting software remotely?

Yes, many accounting software options offer remote access through web browsers or mobile apps. This enables you to manage your finances, create invoices, and view financial reports from anywhere with an internet connection.

Keep Exploring

automated report

How to Build Reports which give Enhanced Insights with Automated Accounting Reports.

Fri 19th May

Accounting is a critical part of running any business. It is essential for tracking revenue,

How Can I Pay My Suppliers In Bulk?

Tue 16th August

Our systems can create secure BACs files allowing you to pay multiple suppliers in one
hotel bookkeeping

What Is hotel bookkeeping? A lawful necessity to maintain records and accounts and assist businesses with maintaining a prosperous business.

Wed 28th June

What are the problems faced by businesses in hotel bookkeeping industry and how 4PointZero helps

Move into the future today!

Try out for FREE for 30 days. Even better, only days that you actually use are counted.

© Copyright 2023. All Rights Reserved. Privacy Policy | Terms & Conditions