Setting Up Xero

In today’s fast-paced e-commerce landscape, having a reliable accounting software is not just a luxury—it’s a necessity. Enter Xero, a cloud-based accounting platform designed to simplify the financial intricacies of businesses, especially those in the e-commerce sector.

Xero stands out in the crowded accounting software market for several reasons. One of its most notable features is its expansive apps market, which offers a plethora of integrations tailored for e-commerce businesses. Among these integrations is A2X, a game-changer for e-commerce sellers. A2X seamlessly connects with platforms like Amazon and Shopify, ensuring that all sales, fees, and costs are automatically imported and reconciled in Xero. This means e-commerce businesses can have real-time insights into their financial health without the hassle of manual data entry.

For e-commerce business owners, understanding the nuances of platforms like Amazon or eBay is already a significant task. Add to that the complexities of accounting, and it can become overwhelming. That’s where Xero shines. Its user-friendly interface, coupled with e-commerce specific integrations, ensures that business owners can focus on what they do best—selling products and scaling their operations.

In the subsequent sections, we’ll delve deeper into how to set up Xero for your e-commerce business, ensuring you harness its full potential. Whether you’re just starting out or looking to switch from another accounting software, this guide will provide you with the insights you need to get started with Xero confidently.

Step-by-Step Guide to Creating a Xero Account

Embarking on your Xero journey begins with setting up an account. While the process is straightforward, it’s essential to ensure that every step is executed correctly to make the most of the platform’s features. Here’s a concise guide to get you started:

1. Visit the Xero Website: Head over to Xero’s official website. On the homepage, you’ll find a ‘Try Xero for Free’ button. Click on it to initiate the sign-up process.
2. Provide Basic Details: You’ll be prompted to enter basic information such as your email address, name, and phone number. Ensure that the details are accurate, as they’ll be used for account verification and communication.
3. Choose Your Business Type: Xero will ask about the nature of your business. Since you’re in the e-commerce sector, select the option that best describes your operations, whether it’s retail, online sales, or a combination of both.
4. Tailor Your Experience: Xero offers a range of features tailored to different business needs. At this stage, you can specify your requirements, such as inventory management, payroll, or multi-currency support. Most e-commerce businesses will require the multi currency option.
5. Set Up Security: Choose a strong password to secure your account. Xero also offers two-factor authentication (2FA) for added security, which is highly recommended, to protect your account.
6. Confirm Your Email: Once you’ve filled in all the details, Xero will send a confirmation email to the address you provided. Click on the link in the email to verify your account.
7. Personalise Your Dashboard: After verification, you’ll be directed to your Xero dashboard. Here, you can customize the layout, add widgets, and get an overview of your financial health at a glance.
8. Choose a Subscription Plan: Xero offers various subscription plans tailored to different business sizes and needs. Review the features of each plan and select the one that aligns with your e-commerce operations. Remember, you can always upgrade or downgrade based on your evolving requirements.

And voilà! You’ve successfully set up your Xero account. But this is just the beginning. The subsequent sections will guide you through connecting bank accounts, integrating e-commerce tools like A2X, and optimizing your Xero experience for seamless financial management.

Connecting Bank Accounts and Integrations

One of the standout features of Xero is its ability to connect directly with your bank, streamlining the process of updating and reconciling transactions. Additionally, its compatibility with various e-commerce integrations ensures that your financial data is always up-to-date and accurate. Let’s delve into how you can set these up:

Connecting Your Bank Account:

• Direct Feed: Navigate to the ‘Accounts’ tab and select ‘Bank Accounts’. Click on ‘Add Bank Account’ and choose your bank from the list. Follow the on-screen instructions, which typically involve logging into your online banking platform to authorize Xero access.
• Manual Import: In instances where the bank feed doesn’t cover historical data or a bank feed isn’t available for your particular bank, you can manually import bank statements. Download the statement from your bank in a CSV, OFX, or QIF format. In Xero, go to ‘Accounts’, then ‘Bank Accounts’, and select ‘Import a Statement’. Upload the file and match the columns to Xero’s fields.

E-commerce Integrations with A2X:

• Connect A2X to Xero: First, ensure you have an A2X account. From the A2X dashboard, click on ‘Settings’ and select ‘Connect to Xero’. This will redirect you to Xero for authorization.
• Linking E-commerce Platforms: Within A2X, you can connect platforms like Amazon or Shopify. Once linked, A2X will help to automate the process of fetching and categorising your sales, fees, and other transactions, preparing them for reconciliation in Xero.

Other Essential Integrations:

• Payment Services: For e-commerce businesses, timely and efficient payment processing is crucial. Xero integrates with various payment gateways like PayPal, Stripe, and GoCardless. Navigate to ‘Settings’, then ‘Payment Services’ to set up. These integrations are more relevant to e-commerce businesses with B2B sales as it will allow an invoice to be paid by the customer using one of these convenient payment methods.
• Inventory Management: Whilst there is some basic inventory functionality in Xero which can help with getting started, tools like Unleashed or DEAR Inventory can be integrated with Xero, ensuring real-time updates on stock levels, sales, and purchases.
• Regularly Reconcile Transactions: With bank feeds and integrations set up, transactions will flow into Xero. Regularly visit the ‘Reconcile’ tab under ‘Bank Accounts’ to match bank transactions with sales, expenses, and other financial activities. This ensures your financial records are accurate and up-to-date.

By effectively connecting your bank accounts and leveraging the power of integrations, you can transform Xero into a comprehensive financial hub for your e-commerce business. Not only does this save time, but it also provides clarity, ensuring you’re always informed about your business’s financial health.

Setting Up Chart of Accounts

The Chart of Accounts is the backbone of your accounting system. It’s a comprehensive list of all accounts in your general ledger, from assets and liabilities to income and expenses. For e-commerce businesses, a well-structured Chart of Accounts can provide invaluable insights into financial performance. Here’s how to set it up in Xero:

Understanding the Default Chart of Accounts:

• When you first set up Xero, it provides a default Chart of Accounts tailored to general business needs. This includes common accounts like ‘Sales’, ‘Rent’, ‘Bank Fees’, and ‘Office Supplies’. While these are a great starting point, e-commerce businesses often have specific financial activities that need dedicated accounts.

Adding E-commerce Specific Accounts:

• Dividends: If you distribute profits to shareholders, you’ll need an account to track these transactions. Navigate to ‘Accounting’, then ‘Chart of Accounts’, and click ‘Add Account’. Choose ‘Equity’ as the account type and name it ‘Dividends’.
• Specific P&L Accounts: E-commerce businesses might have unique expenditures, like ‘Amazon Seller Fees’ or ‘Shopify Fees’. Add these as individual expense accounts to monitor them separately.
• Balance Sheet Clearing Accounts: These are crucial for e-commerce businesses, especially when dealing with platforms like Amazon that hold funds or deduct fees before payout. Create accounts like ‘Amazon Reserve Account’ or ‘Shopify Payments Clearing Account’ to track these transactions.

Organising Your Chart of Accounts:

• Grouping: Xero allows you to group similar accounts for better organization. For instance, all e-commerce platform-related expenses can be grouped under ‘E-commerce Expenses’.
• Numbering: Assign unique numbers to each account. This not only helps in organization but also makes data entry faster and more accurate.

Regularly Review and Update:

• As your e-commerce business evolves, so will your financial activities. Regularly review your Chart of Accounts to add new accounts or deactivate obsolete ones. This ensures that your financial reporting remains relevant and accurate.

Integrating with E-commerce Tools:

• Tools like A2X can automatically create and categorize accounts based on your e-commerce activities. Ensure that these align with your Chart of Accounts structure in Xero for seamless reconciliation by creating the necessary additional nominal accounts to deal with the transactions posted by A2X into Xero.

In essence, a well-structured Chart of Accounts is pivotal for accurate financial reporting. It provides a clear picture of where money is coming from and where it’s going, enabling e-commerce business owners to make informed decisions. And with Xero’s intuitive interface, setting up and managing your Chart of Accounts becomes a breeze.

Adding Contacts and Suppliers

For e-commerce businesses, maintaining a well-organised list of contacts and suppliers is crucial. Whether it’s tracking purchases from a supplier or managing customer invoices, Xero offers a streamlined approach to handle these interactions. Here’s how you can efficiently manage your contacts and suppliers within Xero:

Navigating to the Contacts Section:

• From your Xero dashboard, click on the ‘Contacts’ tab. Here, you’ll find options to manage both ‘Customers’ and ‘Suppliers’.

Adding a New Contact:

• Click on the ‘Add Contact’ button.
• Fill in the essential details such as the contact’s name, email address, phone number, and physical address.
• You can also add notes or specific terms for each contact, providing context for future interactions.
• For suppliers, you can also input details like bank account information, which can streamline payment processes.

Managing Contact Groups:

• Xero allows you to create contact groups, which can be particularly useful for segmenting your contacts. For instance, you can have separate groups for ‘Local Suppliers’, ‘International Suppliers’, or ‘VIP Customers’.
• To create a group, click on ‘New Group’ within the ‘Contacts’ tab and assign contacts accordingly.

Integrating with E-commerce Platforms:

• If you’re using platforms like Shopify or WooCommerce, you can integrate them with Xero. Depending on your specific needs and the specific integration that you choose to use, you can set up your integration so that new customers on your e-commerce store are automatically added to Xero’s contact list, saving you the hassle of manual entry. It’s likely however that as a high volume e-commerce business, you would not want to maintain all customer details in Xero due to the processing impact that this would have on the system’s speed.

Regularly Update Contact Details:

• E-commerce is dynamic, and changes are frequent. Whether it’s a supplier updating their bank details or a customer changing their shipping address, ensure that you regularly update these details in Xero. This will help avoid potential hiccups in transactions or deliveries.

Creating Invoices

In the e-commerce world, timely and accurate invoicing is paramount. Not only does it ensure a smooth cash flow, but it also fosters trust with your customers. Xero simplifies the invoicing process, making it easy even for those without an accounting background. In practice, most e-commerce platforms and marketplaces will automatically send receipts to customers when they place an order, therefore the process of raising invoices is more relevant to e-commerce sellers that are selling B2B. Here’s how to create invoices in Xero:

Starting with Invoices:

• From your Xero dashboard, navigate to the ‘Business’ tab and select ‘Invoices’. Click on the ‘New Invoice’ button to begin.

Inputting Customer Details:

• If you’ve already added the customer to your contacts, their details will auto-populate when you select them. If not, you can quickly add a new customer by filling in their name, email, and address.

Detailing the Invoice:

• Add the products or services you’re billing for. If you’ve set up an inventory in Xero, items will auto-populate as you type.
• Specify the quantity, unit price, and any applicable discounts. Xero will automatically calculate the total.

Setting Payment Terms:

• Define when the invoice is due. For e-commerce businesses, this is often immediately upon order placement or shipment. However, you can customise terms based on your business model. B2B customers will typically expect to receive payment terms of around 30 days but this would depend on the specific agreement that you have in place with them.

Customising the Invoice:

• Xero offers various options for the customisation of your invoice templates. You can also add your logo for a personalized touch.

Sending the Invoice:

• Once you’ve reviewed all details, click on ‘Approve and Send’. You can send the invoice directly from Xero via email, or download it as a PDF to share through other means.

Automating with E-commerce Integrations:

• If you’re using e-commerce accounting integrations like A2X, the process of creating invoices can be automated. Sales data from platforms like Amazon or Shopify can be directly imported into Xero, generating invoices that reconcile back to your cash received without manual intervention.

Monitoring Invoice Status:

• So long as you’re reconciling your bank feed up to date as set out above, Xero provides real-time updates on invoice statuses. You can quickly see which invoices are outstanding, partially paid, or settled. This helps in managing cash flow and following up on pending payments.

Invoicing, while a fundamental aspect of business operations, doesn’t have to be tedious. With Xero’s user-friendly interface and e-commerce integrations, you can ensure that your invoicing process is efficient, accurate, and reflective of your brand’s professionalism.

Recording Expenses and Receipts

Every e-commerce business, regardless of its size, incurs expenses. From purchasing inventory and paying platform fees to handling shipping costs and marketing expenditures, tracking these outflows is crucial for understanding profitability. Xero offers a comprehensive solution to record expenses and manage receipts, ensuring that you always have a clear picture of your financial health. Here’s how:

Navigating to Expenses:

• From your Xero dashboard, head to the ‘Business’ tab and select ‘Bills to Pay’. This is where you’ll manage and record your expenses.

Creating a New Bill:

• Click on the ‘New Bill’ button.
• Input the supplier’s details. If they’re already in your contacts, their information will auto-fill. Otherwise, you can add a new supplier on the spot.
• Detail the expense by adding items, quantities, and costs. If you’ve set up inventory or frequently used services in Xero, these will auto-populate as you type.

Attaching Receipts:

• For each bill, you can attach a digital copy of the receipt or invoice. This is especially useful for audit trails and future references. Simply click on the ‘Attach a file’ option and upload the relevant document.

Setting Due Dates and Payment Terms:

• Specify when the bill is due and any payment terms agreed upon with the supplier. This helps in managing cash flows and ensuring timely payments.

Automating Expense Entries with Apps:

• Tools like Dext Prepare (formerly Receipt Bank) can be integrated with Xero. By simply taking a photo of a receipt or forwarding an email invoice, Dext Prepare extracts the data and pushes it to Xero, automating the expense recording process detailed above.

Recurring Expenses:

• For regular expenses like monthly subscriptions or rent, you can set up recurring bills in Xero. This ensures that you don’t miss recording any periodic outflows.

Reviewing and Approving Bills:

• Before finalizing, review the details of the bill. Once satisfied, click ‘Approve’. You can then schedule payments directly through Xero or mark the bill as paid if settled through other means.

Expense Reporting:

• Xero offers detailed reports on expenses, allowing you to analyze spending patterns, identify cost-saving opportunities, and forecast future outflows.

In the dynamic world of e-commerce, where expenses can fluctuate based on campaigns, seasons, or market trends, having a robust system to track every penny is invaluable. With Xero’s intuitive expense management features, coupled with e-commerce integrations, you can ensure that every cost is accounted for, giving you a clear view of your bottom line. To save further time you can use apps like Dext to process bills.

Generating Reports and Insights

In the e-commerce realm, data-driven decisions are the cornerstone of success. Beyond just recording transactions, understanding the financial story they tell is pivotal. Xero offers a suite of reporting tools that provide insights into your business’s performance, helping you make informed choices. Here’s how to harness the power of Xero’s reporting:

Accessing Reports:

• From your Xero dashboard, navigate to the ‘Accounting’ tab and select ‘Reports’. Here, you’ll find a comprehensive list of available reports, categorised for easy access.

Profit & Loss Statement:

• Often referred to as the P&L, this report provides a snapshot of your revenues and expenses over a specific period, showing you the net profit or loss. For e-commerce businesses, regularly reviewing the P&L can highlight successful campaigns or seasons and areas of expenditure where savings might be possible.

Balance Sheet:

• This report offers a holistic view of your business’s financial health, detailing assets, liabilities, and equity. It’s essential for understanding liquidity, debt levels, and overall solvency.

Cash Flow Statement:

• Cash is king in e-commerce. This report tracks the inflow and outflow of cash, helping you manage liquidity, plan for significant expenditures, and ensure you can cover operational costs.

Inventory Reports:

• For e-commerce businesses, inventory management is crucial. Xero’s inventory reports provide insights into stock levels, fast-moving products, and items that might be underperforming. This aids in procurement decisions and inventory turnover strategies. For many businesses however, they will be best off tracking inventory outside of Xero with a fully functional order management system.

Aged Receivables and Payables:

• These reports detail outstanding invoices and bills, categorized by their age. They’re invaluable for managing cash flow, following up on overdue payments, and ensuring timely settlements to suppliers. It’s important to review these in order to ensure the accuracy of your P&L and Balance Sheet.

Custom Reports:

• Xero offers the flexibility to create custom reports tailored to your e-commerce business’s unique needs. Whether it’s tracking returns, or understanding seasonal sales patterns, custom reports provide granular insights.

Sharing and Collaborating:

• Reports in Xero can be shared directly with team members, advisors, or stakeholders. You can also export them in various formats, including PDF and Excel, for further analysis or presentations.

Regularly Review and Analyse:

• Merely generating reports isn’t enough. Regularly review them, compare against benchmarks or past periods, and delve deep into the insights they offer. This proactive approach can highlight opportunities or potential challenges, allowing for timely interventions.

In conclusion, while Xero offers a plethora of tools for transaction recording and management, its true power lies in the insights it provides. For e-commerce businesses, where margins can be thin and competition fierce, leveraging Xero’s reporting capabilities can be the difference between thriving and merely surviving.

Collaborating with Advisors or Accountants

In the digital age, collaboration is no longer confined to physical offices or face-to-face meetings. With cloud-based platforms like Xero, e-commerce businesses can seamlessly collaborate with financial advisors or accountants in real-time, ensuring that expert advice is always just a click away. Here’s how Xero facilitates this collaboration:

Granting Access:

• From your Xero dashboard, navigate to the ‘Settings’ tab and select ‘Users’. Here, you can invite your accountant or financial advisor by entering their email address.
• Define their user role. Xero offers various roles, from read-only access to full administrative rights, allowing you to control the level of access based on trust and necessity. It’s most likely that the ‘Advisor’ permission level will be what is needed by your accountant.

Real-Time Data Sharing:

• Since Xero is cloud-based, any changes or updates you make are instantly visible to your collaborators. This means your accountant can access up-to-date financial data, ensuring timely advice and accurate reporting.

Discussing Directly on Transactions:

• Xero offers a unique feature called ‘Discuss’. If your accountant has a query about a specific transaction or needs clarification, they can start a discussion thread right next to the entry. This ensures context and clarity, eliminating back-and-forth emails.

Secure Document Sharing:

• Need to share financial statements, contracts, or other sensitive documents? Xero’s ‘Files’ feature allows you to upload and share documents securely. Your accountant can access these files, ensuring that all necessary information is at their fingertips.

Monthly Reviews and Check-ins:

• Schedule regular check-ins with your accountant using Xero’s data. Whether it’s a monthly review of financial statements or a quarterly tax planning session, having real-time data ensures that these meetings are productive and actionable.

Accessing Expert E-commerce Advice:

• E-commerce accounting has its nuances, from handling international transactions to understanding platform-specific fees. Collaborating with an accountant who understands the e-commerce landscape, like Elver E-Commerce Accountants, ensures that you’re not just getting generic financial advice but insights tailored to your business model.

Revoking Access:

• If you ever need to change accountants or limit access, Xero allows you to revoke or modify user permissions with ease, ensuring data security.

In essence, Xero transforms the traditional client-accountant relationship into a dynamic, real-time collaboration. For e-commerce businesses, this means faster decision-making, timely interventions, and the assurance that expert advice is always accessible.

Looking for Help with Your Xero Set-Up?

E-commerce is a dynamic and intricate world. While platforms like Xero offer a plethora of tools to simplify financial management, setting it up optimally for your unique business needs can be a challenge. That’s where expert guidance can make all the difference.

Why Choose Elver E-Commerce Accountants?

• E-commerce Expertise: We’re not just chartered accountants; we’re e-commerce specialists. You won’t need to spend time explaining your Amazon storefront or Shopify nuances to us. We get it. From understanding platform-specific fees to handling international VAT and GST, our expertise ensures that your accounting is in safe hands.
• Seamless Xero Set-Up: Whether you’re migrating from another software or starting fresh, our team ensures that your Xero set-up is seamless. From connecting bank accounts to integrating e-commerce tools like A2X and Dext Prepare, we handle it all.
• Tailored Chart of Accounts: Every e-commerce business is unique. We customise your Chart of Accounts, ensuring that it reflects your business model, from e-commerce clearing accounts to advertising spends.
• Ongoing Support: Our collaboration doesn’t end once Xero is set up. We offer ongoing support, ensuring that you’re leveraging Xero’s capabilities to the fullest. Whether it’s understanding a report, reconciling a tricky transaction, or planning for tax season, we’re here to help.
• Training and Empowerment: We believe in empowering our clients. Our team offers Xero training sessions, ensuring that you and your team are confident in using the platform. From basic navigation to advanced features, we ensure that you’re Xero-savy.
• Data Security: Your financial data is sensitive, and we treat it with the utmost care. Our processes are designed to ensure data integrity and security, giving you peace of mind.

Ready to Elevate Your E-commerce Accounting?

Don’t let the intricacies of accounting hold back your e-commerce venture. With the right tools and the right team, you can focus on what you do best—growing your business. Whether you’re looking to set up Xero, integrate e-commerce tools, or simply need expert financial advice, Elver E-Commerce Accountants is here to assist with Xero Accounting.

 

Let’s get started with Xero health check.