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Moving towards “Xero” Data Entry and Better Client/Accountant Collaboration

May 18, 2011 | By | 29 Replies More

One of my top goals is to keep myself, our company, and our network of consultants on top of technologies and trends that help us grow our business, be more efficient, and make better recommendations to our clients. Lately I’ve been looking at a trend that I believe will make a fundamental change in how accounting professionals work with clients and their data.

New technologies often come with some unintended drawbacks. For example, ever since the PC revolution in the 1980s, with the “distributed” computing model, when everyone did their own accounting and bookkeeping on their own PCs in their offices, accountants started to lose control of the general ledger. Accountants lost control because they could no longer be the gatekeepers of entries to the general ledger. And as client-based accounting software has flourished, tax preparers continue to receive even bigger messes from clients than in the old shoe-box days. This “bigger messes from clients” issue is a good example of how innovative, technological revolutions present us with useful and productive new tools — but at the same time they disrupt our tried-and-true business processes, often in ways that seem to produce the opposite results they intend to produce.

So as I look around for better ways to do things, every now and then I have that “aha moment” when I feel like I see the future. Recently, such a moment came when I visited the offices of Xero in Wellington, New Zealand.

The big “aha” for me is that while so many of us “experts” have focused on learning better tricks for entering data into accounting software programs, the future as demonstrated by Xero’s online accounting system isXero online accounting software that entering data will no longer be the focus in tomorrow’s accounting systems. The Xero philosophy is to move us closer to zero data entry!

We get to zero data entry by using the power of the Internet to connect banking feeds, customer-entered data, vendor-entered data, and employee-entered data into a system, so the “bookkeeper” no longer enters data but instead manages the flow of transactions through the system. The bookkeeper role will still be important in this new world, but I think their role will change dramatically from how to enter transactions efficiently to how to manage transactions and other “data flows” on the Web. There will be some data entry in the new world, but only a fraction compared to the way we do things today.

If you’ve seen Mint,Mint.com manages personal finances Intuit’s free online personal financial management product, you’ll see some similarities with Xero, but the key is that Xero is taking these concepts and serving them up for small business. Another example of the zero data entry philosophy isZen by Bill.com demonstrated in Bill.com’s Zen feature, whereby all vendor bills are faxed or e-mailed to a special address where the transactions are entered for you.

Xero is already succeeding to the tune of 30,000 customers around the world, who pay between $20 and $40/month for the service. The company was founded in 2006 by Rod Drury and Hamish Edwards, along with a very talented team of passionate engineers, led by Craig Walker. They focused on building the best architecture for SaaS software and a robust accounting engine. The company is now a public company in New Zealand and they have raised $35 million to build out their vision.

The company’s first five years was spent perfecting the SaaS architecture, building the accounting engine, and acquiring customers in New Zealand, the U.K. and Australia. This year they are entering the U.S. with a great product. In the U.S., they’ll find a market that is hungry for better solutions, and ready to take the SaaS plunge now that so many accountants and small business owners understand the huge benefits of moving accounting to the cloud.

Xero is a full online accounting system that connects to major banks and pulls bank transaction data directly into the application. Xero also has online invoicing, payables, fixed assets, employee expense management, and nearly all of the functions that most small businesses need from their accounting system.

One of the biggest reasons I’m so excited about Xero is that they view the role of the accountant as a collaborator with small business owners in managing their accounting data in real-time. This is a key philosophical difference from the old desktop software world because it helps accountants reclaim control of the general ledger while at the same time providing a much higher level of service to their clients.

You will be hearing more about Xero from us in the future.

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Category: For Consultants/Accountants, For Small Business Owners, Success Tips, Technology/Trends, Xero

About the Author ()

Doug Sleeter is a passionate leader of innovation and change in the small business accounting technology world. As a CPA firm veteran and former Apple Computer Evangelist, Doug has melded his two great passions (accounting and technology) to guide developers in the innovation of new products and to educate and lead accounting professionals who serve small businesses. Doug is best known for his expertise in QuickBooks as well as driving the adoption of online accounting and small business process solutions. In the early 1990s, Doug was a pioneer in developing the first QuickBooks seminars in the country and has since built the largest group of accounting software consultants in the small business accounting profession. Doug serves on several advisory boards for technology companies and has consulted with numerous industry leaders, including Intuit, Sage, Apple, and Adobe Systems. CPA Practice Advisor has recognized Doug as one of the "Top 25 Thought Leaders" in the accounting profession for the past several years and he has been named to Accounting Today's "Top 100 Most Influential People in Accounting" each year since 2008. Highly sought for his ability to engage and educate accounting professionals, Doug presents at various accounting events throughout the year, including those held by the AICPA and numerous state CPA societies. Doug also hosts the annual Accounting Solutions Conference, attended by hundreds of accounting professionals, industry leaders, and technology developers.

Comments (29)

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  1. How does this compare with what Personalble is doing to reduce data entry into QuickBooks?

    • Doug Sleeter says:

      Hi Hal, Thanks for your post. The Personable product you’re referring to is most likely Scanwriter. That product allows you to import bank data into QuickBooks, thereby automatically populating the data as opposed to manually entering. So that is a step in the direction of zero entry, but it does not provide a direct feed of the banking data that I think will be the norm in the future. Who knows for sure, but I believe we’ll see lots more of the direct-feed products out there in the future.

      Thanks again for posting.

  2. I am glad that the future is something I will not have to mess with. This love fest with cloud computing is going to be a problem. From what you say it means I have to turn over to their system, not only my account numbers, login, and password, but the same things for my accounts with vendors and customers.

    Every major credit card company has been hacked, and account numbers stolen, not to mention federal agencies.

    And I can guarantee you that the major CC companies spend more on data security than most other companies, especially startups.

    Keep in mind the security of your financial life is only as strong as the minimum wage worker in the data center.

    • Doug Sleeter says:

      Hi Jim,
      I completely sympathize with your points, and for sure there will always be risks with these technologies. So it’s fine if people want to opt out of the “new world” for tracking their accounting data, but consider that no matter what one chooses for managing accounting data, the cloud is here to stay, and it’s already very prevelant in our lives.

      If someone really wanted to opt-out of the cloud, then they would need to close all their bank accounts, brokerage accounts, credit cards, and never order anything from a web store. All of those use the web to track and manage your data and they have done so for years. Oh, and by the way, the IRS is forcing all tax return submissions to be done online, so there really is no way to completely opt-out. The best we can do is learn best practices, and implement accordingly.

      • Doug, I think my concerns and your examples differ to some extent. In your examples my login and password is unique to that vendor, bank, or broker and if compromised, it is one account.
        In this cloud scenario all accounts are consolidated, major difference in my view.

        I know the cloud is here to stay, and I know people are already consolidating logins and accounts so they can view all accounts at one site.

        Again as far as the IRS is concerned, that is still one account and login, while I report interest, dividends etc, I am not giving the IRS my banking and credit card logins.

        Just my views, I usually in the minority in this area.

        • Doug Sleeter says:

          @Jim,
          Great points and I think your perspective is shared by manyif not a majority of people today. I continue to be amazed at how so many technologies are “dangerous,” but we all use them anyway. Cars are dangerous, we lay our credit cards down on the restaurant table and don’t even think about what happens when the server picks it up…

          The key is to compare the “danger” of online accounting technologies with the “danger” of having all of our data in our offices where I doubt anyone has armed guards with 24/7 security, industrial-grade firewalls and constantly-monitored software security.

          I’m just as concerned as you are about online security, but I believe this trend of online accounting and zero (or near zero) data entry will become mainstream in the future regardless of the dangers because the benefits of these technologies far outweigh the risks.

  3. Rod Drury says:

    Hi Jim, these are valid concerns that Cloud providers need to deal with.

    Here is our approach to security: http://www.xero.com/accounting-software/security/

    Xero is a public company so we raised the capital to do this properly. You are correct that it’s tough for startups who have the resources.

    How else could we make you comfortable?

    Best regards,

    Rod

    • Rod
      Well the page you referred me to doesn’t say much at all does it?
      “Our software has never been breached and we have never lost any customer data.”

      It’s a chicken and egg kind of thing, I would be interested in the virus checkers you use, the firewalls, encryption level, back-up routine/periodicity, off site/on site archival, etc. But if you tell me that, well you give a hacker a heads up.

      I just do not like keeping all the eggs in one basket.

      Good luck in your venture, I am sure there will a large group of people who will use your services.

  4. John Krech says:

    Hi Doug, Thanks for your post and I would add the move toward business intelligence will be a component of zero data. Specifically business intelligence will be able to analyze data and automate functional task data entry. For example, business intelligence will automate the data entry required to replenish inventory. This will automate purchase orders and reorder points and directly lead into automated entry of invoices etc…

  5. Brad Bowyer says:

    Hi Doug,

    Thanks for a great post. We’re just entering the cloud space and have no concerns.

    Did Xero address the “don’t share your password with anyone” mantra of the banks, and how it relates to this type of service? I tried MINT (which I loved), but cancelled and changed all my passwords when I got afraid that the fraud protection would be waived from the banks (as I obviously gave my password to a third party). I haven’t looked into the reality, but wondering if you know how they are addressing that specific concern.

    Cheers,
    Brad

  6. Doug Sleeter says:

    @John – Agreed. Once we get the data into the cloud, there is a world of new possibilites. And business analytics, benchmarking, automating supply chains, the list goes forever.
    @ Brad, and follow up to @Jim – Of course, just like when cars were invented, things take a while to go mainstream and work out all the challenges. With this new technology, the “roads” are pretty much built, but we still need to invent seat belts so people don’t get hurt as much. Of course we’ll never completely eliminate risks, but this stuff will eventually happen. Re: passwords, it’s important to note that the banking “feeds” that products like Mint and Xero use are READ-ONLY connections. Also, whenever you discuss security of the web, you should always make sure to compare it with security in your office, or of your client’s offices. For sure, this is a completely new way of looking at things, so expect some discomfort, and some “working out the bugs” along the way. That’s what I mean by “disruptive technologies.” But we just cannot ignore this stuff. It IS happening, and much of it ALREADY has happened.

  7. Hi Brad, further to Rod’s comments above, before enabling automated bank feeds through Yodlee we thoroughly reviewed the security of their data gathering service (as described here http://www.yodlee.com/security.html) and the integration with Yodlee has been designed so that any customer’s banking credentials are never stored in Xero.

    Over 40 of the largest US banks use Yodlee to enable similar statement data aggregation within their own Internet Banking sites for their customers. It’s difficult to comment in general about Banking Terms of Use as these obviously vary between banks. However, if customers have concerns about this we suggest that they use a restricted or read-only level of Internet Banking user account to enable the automated feeds.

    • Brad Bowyer says:

      Thanks Alastair,
      I appreciate the comment. It makes sense to integrate with a provider who focuses in that area. I hadn’t heard of Yodlee before – I’ll give them a look. Cheers.

    • Zvi Rupp says:

      Are there any banks offering read-only access to online banking? I find that many businesses are not comfortable giving the bookkeeper full access to their banking. If there was a way to give restricted access to the the bank accounts (Chase, BofA, TD) it would give the client some peace-of-mind.

  8. Kara Haas says:

    Great to see you here, Doug! Great post.
    I could not agree more. Xero has certainly changed my perspective and definition of data entry. Importing A/P and A/R invoices, journals, and older bank statements/transactions has made such a difference. I had a bit of manual data entry to perform on some files this past week, and it almost felt sinful.

  9. It is true that the accounting space is changing rapidly! It’s almost hard to keep up with all of the changes. But technology is just an enabler to bigger philosophical changes as to how accounting data is processed. In the US we are used to processing accounting expenditures in our accounting software by typing into something that looks like a big electronic check (as in QuickBooks). But it took some entrepreneurs and designers at Xero (not accountants) to challenge us in our predisposition to processing accounting data.

    How should we process accounting data in the future? Well, I can assure you that it will not be the way we do it now. With cloud tools, we are able to help out clients move into a world of managing “data flows” as opposed to doing accounting. They are snapping pictures of their receipts, scanning and emailing documents into systems, paying people electronically and managing “always on” perpetual bank reconciliations. And the best part is that all of this “data flow” automatically populates accounting systems better than accountants can do it. Bottom Line: we don’t need accountants to do accounting.

    Technology is getting smarter, so it means the accountant’s job must change. MUST. It will HAVE to change. So the dude’s comments above about the “love fest with the cloud” are hilarious. I’m glad he’s not part of the accounting future too (that makes two of us!). Sheesh.

    Anyway, since innovative cloud providers are building products that are challenging our beliefs on how to process accounting data, and are specifically challenging the paper-based system of businesses, we are going to see our views on accounting change.

    The new breed of accountants will now be managing “data flows” among various disparate computer systems, becoming experts in how they talk to each other and how best to make them work together. Throw in the secure online cloud systems we are all moving to, and we now get to do all of this anywhere, anytime, and for anyone. Pretty cool. Our firm has heavily valued (Rod Drury likes it when I use the words “heavy value” so I threw that in there for him) our ability to make systems talk to each other, eliminate manual entry and get rid of paper. Paper is killing our clients’ business processes, and now we can eliminate it for them. We are becoming the cloud solution providers, doing it all over the world and consulting on efficiency within business processes.

    But this is a hard road to walk because the cloud is always changing, which means our consulting has to always include the latest products and how they now affect business processes. Whew. It’s fun, but time consuming to keep up.

    The new definition of the public accountant: “Business and Accountancy Efficiency Cloud Solutions Integrators.” (try to fit that on your business card).

    In summary, you’ll find Xero processes things differently. It’s not what we’re used to. But I like it because these systems are finally being built collaboratively with other systems in mind. The right systems are challenging the old out-dated way of doing things and proposing new ways to do it. Some won’t like it. But they can kiss my butt. I’m gonna hang with those who like it, because I’ve got a lot to learn.

    I think I’ll get my PhD in Business and Accountancy Efficiency Cloud Solutions Integration. Do they offer that yet?

  10. Doug Sleeter says:

    @Jason – Great post. It was very “heavy value.” <:
    Yes, Xero has a great opportunity to disrupt and force accountants to rethink. That is the challenge they have. It’s clear to me that what they’re doing is exactly the right direction, but the vast majority of accounting professionals are heads-down helping current clients using current, old world technology. To “switch” those people will be hard, but some are starting to see the light. But as new professional arrive on the scene (e.g. the Gen X and Gen Y folks), they will say “duhh, why hasn’t accounting always worked this way?”

    So like many times in my career, I’m trying to bridge the gap between conventional wisdom and future vision. It means taking bullets at times.

    • Jeff Smart says:

      you are completely right Doug, conventional wisdom is for the baby boomers which make up the majority of the Population in North America, and completely changing their ways from what they have been doing all their lives in accounting is very difficult! As for Future Vision, that is for Gen x and Y kids who like taking shortcuts and have their ipads and touch screen phones attached to their palms expecting it to automatically do everything for them with one swipe of a finger (xero accounting). The true success for bridging the gap between the two, is to implement technological tools that is simple enough use with how your work has always been done and still make a big impact on your work.

  11. Paul Blair says:

    While Xero can integrate with bank feeds it is not necessary in order to use the product. You can manage this manually by downloading your bank records through your internet banking system and then importing it into Xero. This only takes a couple of minutes.

  12. Fred Blauer says:

    The problem with proprietary SAAS based systems (such as Xero, Intuit, Netsuite etc.) is that you are locked-in. What happens if they disappear, or decide to double or triple their prices? What happens with your data? What do you do then-start over again? If you go with an open source, cloud based system then you have much more flexibility and control. A good example is xtuple postbooks. You can deploy it in whatever cloud you want (ex. xtuple, Amazon, Rackspace, host it for your clients, or whatever you want). The point is that you have all the benefit of the cloud without giving up control, not to mention that they are also less expensive for the same features.

    • Fred, there are valid points in what you are saying, but I’m not 100% sure that your solution would work for all situations. I’ll admit at this point that I have not looked into any particular open source product in detail at this point. Nor am I familiar with Xero in depth at this point.

      I use open source products or publicly maintained products when appropriate. This blog is an example, it uses WordPress.

      QuickBooks is an example of a product that has some of the drawbacks you mention, although it isn’t a SAAS based system. If Intuit drops the product, or raises prices, you may be stuck. There are differences, of course – the product will continue to work (but not fully), and there are way s to get your data out.

      However, there are certain things that I would be concerned about with an open source system. These concerns can be addressed, but I don’t know if the product you talk about handles these. For example, there are requirements for safety of information such as credit card numbers, personal ID numbers, things of that sort. Closed/Proprietary systems may have a better handle on that kind of security.

      If you use any online system, in fact ANY software system that holds your critical data, you have to ask yourself if you have trust in the longevity and integrity of the supplier. It also helps if there is an “exit strategy” – such as a way to extract or export your data from the program. However, these issues aren’t new with SAAS. You can say the same thing about desktop software, going back as far as you want to look into the past.

      Thanks for your comment!

  13. Cliff says:

    It amazes me that a major bank like Citibank can still get hacked. You would think they would have the world’s best-of-breed anti-hacking processes/technologies. If they can get hacked, anyone can.

    http://online.wsj.com/article/SB10001424052702304778304576375911873193624.html

    • Cliff, there is no doubt that there are vulnerabilities in online software. The only way to avoid that is to have your applications totally on your own individual computer, and to never have that computer connected to the Internet. That isn’t practical of course (for most situations). And, even then, you aren’t going to be protected fully. As soon as you use a credit card, your info is out there in the wild and you are relying on someone else’s ability to protect your info.

      The more we rely on online services the more vulnerable we are – so you have to decide which providers you are going to trust, and you have to monitor them closely.

      • Many ignore that all bank, credit card and other financial institution data is on the web. They also ignore that QuickBooks requires slightly insecure web access to install and update. Most important, they compare Xero to having no risk, not alternatives. That is why I wrote 15 Reasons Why QuickBooks is the Worst Place for Your Data, Xero is the Best, for my blog. It also is why I am now #2 for the number of Xero clients in the U.S.

        Yodlee is a U.S.-based bank feed company. Half our leading banks use it to give 35 million users bank balances (without showing the Yodlee name). Yodlee does this by screen-scraping READ-ONLY entries, with a bank name and the last four digits of the account number (no routing number). It uses hidden encrypted tokens, valid only from Yodlee computers. Yodlee passes this to Xero, which has similar security and multiple redundant computers at different locations. It is ridiculous to even compare Xero security, accuracy and reliability to the insecure error prone QuickBooks desktop. It is ridiculous to even compare Xero to the very weak QuickBooks Online, due to invreased Xero funtions and repeated extended QBO crashes.

        Xero has the fastest, easiest, accurate and current accounting. It automatically downloads all entries daily, automating up to 100% of account assignments. CPAs can use it to check and backup QuickBooks data until clients want it. For many, this can cost only $12 a month, compared to the $15 QuickBooks charges merely to backup files of more than 5g.

        The free Xero industry-standard interface attracted twice as many add-ons last year. Intuit often charges up to $5,000 before add-ons apear on on its marketplace.intuit site. Some developers then must pay 20% of add-on revenue, for a proprietary QuickBooks interface, so there were few recent QuickBooks add-ons.

        CPAs can easily use on-demand remote Xero CPAs (XeroCPAs.com) to update Xero and end year-end accounting rushes for less than $10/hour. They can quickly and easily check this work, with frequent keystroke and mouse click counts and screen shots. They can even use $5/hour help to check the $10 people in minutes.

        Due to the Xero safety, security, reliability, speed, accuracy, ease of use and economy, I feel that those not using Xero or similar automatic accounting programs badly hurt themselves and their clients. I most respectfully submit that clients may soon consider this non-use malpractice.

        • Mike, a few comments about what you said about Intuit charges to add-on developers. I’ve not seen them charging $5000 to list an application in the Intuit Marketplace. Last I looked it was something like $1500 per SDK app, for a three year listing (at least, that is what I pay). The 20% revenue charge is for IPP apps, and that pricing policy should expire soon as they switch to “Intuit Anywhere”, which will charge a low flat fee per company file that is connected (last I looked it was something like $5.00 a month, but I could be out of date on that). The percentage of revenue charge is scheduled to go away.

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