About 25 years ago, Tonya took over the accounting for TidBITS from me. I don’t remember what we used originally—possibly MacMoney—but when it came time to set up a proper business accounting system, a financial adviser friend helped us configure and learn MYOB. Over the years, MYOB went through numerous corporate transitions, and the app itself became known as AccountEdge. It was capable but clunky, never really evolving beyond its 1990’s heritage. While Tonya could get it to do everything we needed, particularly after taking an online accounting class in 2018, it was neither easy nor enjoyable to use. The main alternative was Intuit’s QuickBooks, but we had seen Intuit jerk Mac users around too many times with canceled Mac apps to trust it.
Unfortunately, AccountEdge was built on a 30-year-old, 32-bit code base that wasn’t compatible with macOS 10.15 Catalina. MYOB tried and failed to update AccountEdge to be a 64-bit app, and eventually stopped selling it. Tonya didn’t mind keeping one of her Macs on 10.14 Mojave so she could keep running AccountEdge temporarily, but we clearly had to switch accounting systems. Such transitions are most easily done at the start of a year, so in late 2020, we started evaluating the alternatives. Two choices immediately presented themselves:
- AccountEdge Pro: You have to give MYOB credit for trying. The company’s engineers figured out a way to embed the Windows version of AccountEdge in a custom emulation wrapper, and they made that the official migration path for orphaned Mac users. However, for $15 per month, we weren’t interested in using an emulated Windows app.
- QuickBooks: The 800-pound gorilla of the small business accounting world is still Intuit’s QuickBooks. Although the company seemingly sells a $399 desktop version for the Mac, Intuit’s focus is on various cloud versions of QuickBooks Online, with plans starting at $12.50 per month. After her online accounting class, Tonya started another one on QuickBooks, since it is so popular, but gave up on it, noting that QuickBooks came off as being too “helpful” in all the wrong places, papering over the debits and credits with interface terms that didn’t always make sense to her. We were also troubled by the idea of working with Intuit, and the company seems to be up to its old tricks, having just announced that it was discontinuing the Mac app that provided direct access to QuickBooks Online without having to use a Web browser. No thanks.
As we discussed the options further, we realized—or rather, Tonya gently suggested—that I should take over the regular bookkeeping tasks so she could focus on more complex tasks like managing cash flow and working with our tax accountant. That pushed us more toward the concept of a multi-user system. With QuickBooks Online out of the running, we decided to test two alternatives:
- Zoho Books: Zoho doesn’t get a lot of attention, but the Indian company provides a robust suite of Web-based apps, including apps for email, online file management, project management, meetings, help desks, remote support, and much more. In the end, we choose not to use Zoho Books because it was slightly more expensive than Xero at $15 per month and because it couldn’t automatically split a transaction into different line items. (It was possible to do manually, but our payroll transactions require splitting a transaction into 3–7 line items every 2 weeks.) It wasn’t an easy decision because Zoho Books had a lot going for it.
- Xero: Our eventual winner was Xero, a highly recommended online accounting package from a New Zealand company of the same name. It’s known for its modern approach to financial management through integration with over 800 external services and over 200 financial service providers. As of 2019, Xero had over 2 million customers. In short, Xero has met all our needs and been vastly more enjoyable to use than AccountEdge.
Xero was clearly designed during the current app era. Its interface has a spacious feeling and focuses on what you need to see and do at the appropriate moment. Overall, its design draws you in and makes you feel like spending more time in the app, rather than making you dread the tediousness of your bookkeeping sessions. You can use it on the Web or in a tablet- or smartphone-based app. And yes, to address the puffy white elephants in the room, Xero requires a subscription and is cloud-based. I’m sure some reading this will consider one or both of these facts anathema, but we see them as advantages.
As far as the subscription goes, we’re happy to pay $11 per month for a powerful accounting package, particularly because Xero’s big win for us is its integration with our financial accounts and the development necessary to keep up with the changing financial landscape. In contrast, AccountEdge costs $499, and although it wasn’t necessary to pay for its pricey upgrades every year, we were uncomfortable skipping too often. We expect Xero will be cheaper. And Xero has what looks like robust export capabilities, so there’s little worry about being locked in by a subscription.
We’re also happy about Xero being a cloud service because it lets either of us have full access to our finances at any time, on any of our devices, with our individual preferences for Xero’s customizable dashboard and menus. Previously, catching up on accounting work forced Tonya into her office on weekends since that’s where her iMac was, and she couldn’t do anything with that data while traveling. Now it’s something that we often work on together in the dining room on a weekend afternoon, with each of us signing in on a laptop or mobile device. Security is, of course, a question, but Xero has multi-factor authentication and certainly claims to be doing all the right things with encryption and security. All our banking and investment accounts are accessible online—it’s hard to be any more worried about our financial books.
Setup and Integrations
To test Xero, we started with its 30-day free trial. First, we exported a chart of accounts from AccountEdge, complete with a starting balance for each account. That imported into Xero reasonably well, although we ran into several confusions. Some of the starting balances ended up on the wrong side of the credit/debit seesaw due to formatting issues with AccountEdge’s export. Zoho Books did a somewhat better job with that and proved to be helpful in tracking down and fixing the discrepancies in Xero.
The other problem took a few sessions over several weeks in January to understand and resolve. Our goal was to switch to Xero as of 1 January 2021, but since we had been working with it and AccountEdge concurrently in December 2020, a few discrepancies arose between the two systems. After some sleuthing, we were able to identify and understand them. We finally solved the problem by manually adjusting the starting balances in Xero as of January 1st so that they matched what we had as final numbers for 2020 in AccountEdge.
Crucial to the eventual decision was our discovery of an advanced accounting feature Xero calls “tracking categories,” which contain “tracking options.” In AccountEdge, we used “jobs” to differentiate between revenue and expenses for TidBITS, the TidBITS Content Network, and my occasional consulting. In Xero, we called our tracking category “Media Property” and created tracking options for TidBITS, TCN, Adam, and General. As necessary and obvious as this feature is to us, it’s apparently not widely used, given the difficulty we had in determining which packages had it, what it was called, and where to find it. (Zoho Books calls it “tags” and uses “categories” for something else entirely.)
In AccountEdge, Tonya had been entering all transactions by hand—or, when possible, using AccountEdge’s recurring transactions to ease her effort. Xero has an entirely different model. You connect it to your various bank and credit card accounts, and it automatically imports all transactions. Then you go through and reconcile all those transactions, assigning them to particular contacts (Who, on the right in the screenshot below), accounts (What), and tracking categories (Media Property), and entering descriptions (Why). Xero tries to remember transactions based on the payee, and when it does, reconciling is as simple as clicking an OK button. It’s much easier and less error-prone because you never manually enter dates or dollar amounts.
Some transactions are too complex for Xero to fill in automatically, and for those, you can create bank rules. In our setup, payroll transactions require bank rules. When our payroll processor, Paychex, deducts money from our checking account, the transaction isn’t necessarily the same as the previous one. Bank rules let us separate out the different Paychex payees and accounts and record them appropriately.
Bank rules even include options to specify fixed value line items and then allocate the remainder in various ratios. However, I often have to edit the bank rule for our payroll withholdings (shown above) because the details change based on how much we’ve contributed to various unemployment insurance funds or how much New York State has decided to increase the amount to cover shortfalls. It’s slightly irritating, but not so much that we were willing to pay an additional $8 per payroll run to link Xero and Paychex.
These bank rules are also an example of two heads being better than one. Tonya will generally recognize when automation or macros could be helpful but tends to get stuck and frustrated when trying to implement them. However, I was determined to make using Xero as automatic as possible and had the patience and mindset to create the necessary rules. What I lacked was the bookkeeping know-how to understand what some of the rules should do. Together, we got the job done.
The bi-weekly payroll reconciliation is also where I smile and nod and do what Tonya tells me to do. Apparently, we need a general journal entry to split apart all the payroll withholdings behind the scenes. I was able to use Xero to create a repeating journal entry that posts every 2 weeks. I have to remember to go into the draft Xero creates, verify that the numbers haven’t changed (they sometimes move by a penny, annoyingly), and then save the entry.
During setup, we learned that Xero couldn’t connect to two of our accounts: an investment account and an Apple Card. Xero’s interface claimed it could set up bank feeds for our investment bank but seemed to stumble over our account’s use of two-factor authentication. It took some trial and error and discussions with Xero support to discover that Xero can’t actually connect to investment accounts. That makes sense—Xero does business accounting, not personal finance—but it took a while to understand the distinction. Tonya kindly volunteered to enter that account’s transactions manually, and we’re exploring how to use repeating journal entries to speed up her data entry on the handful of transactions that occur each month.
The Apple Card issue was more clear-cut. Despite all of Apple’s claims of innovation in the credit card space and sporadic data export improvements (see “You Can Now Export Apple Card Statements to Quicken and QuickBooks,” 5 June 2020), there’s no online access for systems like Xero. Instead, I export the transactions in OFX format from the iPhone’s Wallet app every month, using the share sheet to store them in a Google Drive folder from which I can then import them into Xero. It’s clumsy in comparison with all the fully connected accounts, but it works.
It’s increasingly uncommon for us to write business checks now that we’ve figured out how to pay our authors using ACH from our credit union. But we do write checks now and then, and it wasn’t challenging to use Xero’s check template editor to match the pre-printed business checks that we run through our laser printer. (The trick is printing on regular paper and putting the printout against a check held up to a light to see if everything is in the right spot.) Needless to say, Xero can tell when the recipient deposits the check and makes it trivially easy to reconcile the withdrawal from the checking account.
Of course, part of the reason for accounting systems is to provide information about the financial state of the business. Xero’s top-level view is a customizable dashboard that shows every account with a chart of changes over the past month. You can rearrange the various panels that appear, plus add boxes that help you pay attention to certain expense accounts, invoices owed to you, bills you have to pay, payroll that’s managed through Xero, and more. Most of these aren’t relevant to our business, so we hide them.
Xero provides a slew of reports, starting with the all-important balance sheet and profit and loss statement. I leave most reporting to Tonya since she has a much better idea of what the different reports convey, plus she gets requests for specific information from our accountant. So far, we’ve been able to extract all the information we need from Xero. Starring a report promotes it to the main Accounting menu for easy access, and you can also customize and save (“publish”) reports for later access.
In that vein, Xero can generate 1099 forms for independent contractors, a category that includes most of our authors. This option requires a bit more setup. Whenever I reconcile a transaction that reflects an author payment, I make sure to set that person as the contact. The first time I pay an author, if that person needs a 1099, I add them to a special contact group in Xero. When we have to generate 1099s next year, Xero can collect all the appropriate payments to those people and produce the 1099 forms.
Finally, I’ve just discovered that Xero offers flexible budgeting. You can specify a monthly budget for anything in your chart of accounts and then bring up a budget variance report that shows how your actuals compare.
What We Don’t Do in Xero
It turns out that we have a somewhat unusual way of using Xero, or potentially a slightly unusual business. As a result, we have little or no use for some of Xero’s high-profile features. Your mileage may well vary.
We receive revenue almost entirely via Stripe: from TidBITS memberships, TidBITS Content Network subscriptions, and TidBITS sponsors. Seldom do we generate a standalone invoice, and we have no desire to track revenue on a per-member or per-subscriber level within Xero—we can do that within Paid Memberships Pro or Stripe if need be. However, Xero devotes significant effort to helping its users generate invoices, link to Stripe to accept payments, and track them within the system. It works well—we tested it with one of my infrequent consulting invoices—but it’s not a big win for us.
Similarly, Xero emphasizes its bill-related capabilities, allowing you to pay one-off or repeating bills and track the payments. These features don’t help us because we pay all bills on time via a credit card or automatic bank withdrawal, and we don’t use special bill-tracking features.
One of Xero’s claims to fame is that it can integrate with a dizzying array of other services. You can sense the breadth of the integration options from Xero’s app categories: Accountant Tools, Bills & Expenses, CRM, Conversions, Custom Integration, Debtor Tracking, Documents, Ecommerce, Financial Services, Inventory, Invoicing and Jobs, Payments, Payroll HR, Point of Sale, Practice Manager, Reporting, and Time Tracking. If you use any online business service, it’s worth seeing if it integrates with Xero. For us, the integrations don’t make a difference; the only one we’ve set up is for Stripe, for use with Xero’s invoicing system.
We use our credit union’s free payment service to pay our authors by ACH, and it works well enough, but we sometimes run up against its per-day and per-month limits. We hoped that Xero would have an integration that we could use, but Xero’s technical support reps said that such a feature exists only for a couple of New Zealand banks.
Finances Made Fun
I’ll admit to some trepidation when it became clear that we needed to switch to a modern accounting system. The first few sessions were a little rough, as we struggled to figure out where everything is in Xero. That’s still our main hurdle, but it’s getting easier as we gain a better sense of the underlying logic behind the interface. Xero’s support documentation is also quite good, and the few times we’ve queried the tech support reps, they’ve been responsive and generally helpful (though our inability to connect with our investment account required them to escalate to Yodlee, the partner company that actually manages the bank feeds).
Now that I know what to do every week when I reconcile transactions, I’m genuinely enjoying using Xero. It provides that ineffable sense of completion when you reconcile all the transactions, and there are times I’ll even swing through the easy ones using the iPhone app if I have a few minutes to kill in the middle of the week. I tend to dive into more involved tasks that require downloading of reports and fiddling with payroll amounts on weekends when we’re sitting around so I can ask Tonya for clarification on any transactions I don’t know how to categorize or anything else that seems odd. Even then, I seldom spend more than 15–20 minutes on it, which is both a lot less time than it took Tonya to fuss with the manual data entry in AccountEdge and sufficiently little that I never feel like it has become onerous.
I’m sure every business has its own necessities and quirks, so I can’t begin to tell you if Xero would be appropriate for other situations. But it has been a positive experience for us—vastly better than AccountEdge—and if you’re unhappy with what you’re using now, it’s worth exploring.