automation

Xero and Cloud Technology - An Internal Case Study

Whenever I decided to go out on my own, I will not lie to you... I had no idea where to even begin.  I spent the first 8 years of career working for various CPA firms in the Houston, TX area learning all things accounting and taxes and gained some valuable technical expertise.  While some of these companies had good systems and processes in place, there were some that did not.  This allowed me to see several different ways of how firms were run and gave me a good sense of what I wanted to do when if/when I decided to go out on my own.  Then one day I decided to take a chance on myself and said, “screw it” and went out on my own.  I will tell you that was the happiest/scariest days of my life.  My original plan was to go out on my own and study for my CPA exam.  Well here we are almost two years later, and my business is up and running and I am finally dedicated to passing the CPA exam.   

One of first things that I decided to do when I did go out on my own was the ability to “work from anywhere.”  I did not want to be restricted to just my “office” and not have the ability to be mobile.  I wanted to be able to travel and just open my laptop and start working without having to have an in-house server and remote into my computer.  I also wanted to make sure that my security was up to date.  One of the biggest things I did not want to do is keep everything locally on my computer.  This included work papers, tax returns, and everything in between.  The two main drawbacks from that:  

  1. Viruses/malware.  Someone could compromise the information on my computer 

  1. Computer malfunction – I could lose all my data  

I set out to find a solution and came up with one that I thought was acceptable at the time.  All my work papers were on a cloud-based storage system, I was using Quickbooks Online exclusively, and a tax preparation software that was stored locally on my computer.  While everything for my bookkeeping clients was on the cloud and easily accessible from anywhere where I was having trouble is my tax software and the files associated with it.  Then I found a way to have the software hosted on the tax software’s server and I was able to access it from anywhere.  My “cloud’ conversion was complete... or so I thought.   

One thing I did find myself doing a lot of was menial administrative tasks.  Everything from formatting engagement letters for every single client, trying to book clients for a meeting, on boarding new clients, and various other tasks.  Being a one man shop at the time this became difficult to do because of the time it was taking away from me being able to serve my clients.  So, I decided to find a solution that would benefit me.  I knew that there were applications out there that could help with this, but the hardest part was figuring out how they spoke to each other.  I wanted to make sure that all these systems were integrated seamlessly together without having to login to each one individually.  So, what did I do?  I demoed applications, demoed some more applications, and then demoed some more.  There were so many demos.   

After testing different applications, I came to the realization that I had a decent system in place for the time being.  What did all this lead to?  Time savings.  Incredible time savings.  How so?  Here are a few examples:  

  1. Tracking time – I was having a hard time keeping track of the projects that were being billed hourly and I found an application that was easily accessible on my phone and through a browser.  There was no more trying to figure out how much time I worked on a project when it came time to billing.   

  1. Proposals – I used to spend about an hour per each proposal we would send to each client because we would customize it to tailor their different needs.  Now with a new application I use it takes me 10 minutes max to send a proposal with an engagement letter attached to a client.  This application also collects payments for me, and I can make sure to get paid before a client signs the engagement letter.  

  1. Engagement Letters – It would take me 15 to 20 minutes per each engagement letter to make sure it was properly formatted and then I would send it to a client to sign.  I would have to upload it to the efile signature application and wait for the client to sign.  Now it is included with the proposal.   

  1. Meetings with clients – I used to spend a lot of wasted time going back and forth with clients trying to find the right time for us to meet.  Now, depending on how we are meeting, I can send them a link to my calendar, and they can choose a time that works around my schedule.  This way you take control of your time and not trying to choose a time around your clients.  

  1. Communication – Using an instant messaging system to communicate internally with my team members.  Communicating through emails can be inefficient because emails can get lost and forgotten.  This is a good way to make sure nothing “slips” through the cracks.   

 

By this point I am sure you are wondering where Xero fits into all this.  Well... my story with Xero is an interesting one.  I came across Xero through the account manager here in Houston.  Like any typical salesperson she insisted on contacting me until I came out and gave Xero a chance.  I went, checked out a demo, and instantly fell in love with the product.  What did I love about it: 

  1. It was built on the cloud for the cloud 

  1. It was an alternative to the other software's that are out there.   

  1. It was visually pleasing to the eye 

  1. It had certain features that I liked 

  1. The community 

That is when I decided to move most of my clients over to Xero.  Now I will be honest with you and say that while this was a feat in itself… it was not an easy transition.  I was under the impression that all accounting systems were the same.  While the function is the same, they do operate in much different ways.  A fact that I learned all too well.  But… once I got over the initial learning curve (like with anything new there is always a learning curve) I realized that this software was amazing.   

Xero is a cloud accounting software that was built on the cloud for the cloud.  This is a powerful tool because I am able to access it, my staff, and the client from any web browser.  There is no need to have to go to a client site or remote into a computer and have to work on a local file.  This was something I wanted to do as I made the transition to a digital firm.   

One of the many things I enjoy doing is checking out which new technologies are out there and to see if there is anyone doing things differently.  This is what happened when I came across Xero.  While there are other options in the market this was the one that called out to me the most.  The main thing I loved about it is how “beautiful” it is.  It is a very visually pleasing software that really made it easier for myself and my staff to work in it.   

Some of the features that really stood out to me were: 

  • Cash coding Feature for quick reconciliation 

  • Report Templates for cleaner looking reports 

  • Reconciliation at the transaction level instead of the statement level 

  • Find and Recode 

  • No journal entries to bank accounts, AR, and AP 

  • Open API with direct integrations to various applications 

  • Partner Program  

  • Xero U with extremely valuable information 

These were the features that stood out to me that really got me excited.  Some of these allowed me to save some even more time and I will get to that in a little bit.   

I do want to talk about the community.  That was probably one of the biggest items that led me to really use Xero.  They have done a wonderful job of creating an environment of collaboration and empowerment for everyone in the space.  I can honestly say I have made some amazing and lasting friendships and have been able to freely bounce ideas off of colleagues and vice versa.  

 

Now I know I spoke of some of the features that were in Xero and the one that I felt provided me the greatest value was the cash coding feature.  Why?  Because I am able to reconcile transactions in bulk.  This is extremely beneficial when I need to prepare a set of books for a client and catch up their prior year or two or whenever we are working with our schedule C clients that do not have an accounting system in place.  Let me give you guys a real-life example:  

Example #1: 

We had a new client come in with their own small business.  We took a look at it and realized it was a decent sized project.  2 bank accounts with about 500 transactions each one and 2 credit card statements with about 1000 transactions for each one.  They did not have an accounting system in place and brought us the bank statements and the credit card statements.  It took us about a day to fully get all the transactions coded in excel, to produce the income statement and balance sheet and prepare the tax return.  Fast forward a year later and the client brings us the same information again but they had grown a bit so there were a few more transactions.  By this point I had already started Xero and decided to use AutoEntry to extract the information from the bank and credit card statements and then upload them to Xero.  By using bank rules and the bulk reconciliation features of the cash coding we were able to do everything in about 2.5 hours. 

Example #2: 

We have a client who is a barber.  He has one bank account with no accounting system in place.  The first year he brought his information and took us about 3 hours to prepare the books for the tax return.  The next year we used AutoEntry and Xero and were able to do it in about 30 minutes.  

So if we look at the lifecycle of a client from initial contact to presentation of a finished product in our firm here is what we are traditionally looking at:  

  • One hour for preparation of proposal 

  • Twenty minutes preparation of the engagement letter 

  • Twenty minutes total time trying to lock down a time for us to set up a meeting 

  • Four to six hours to prepare the bookkeeping for the schedule C clients.  

  • One to two hours of tax prep  

  • Total we are looking at about anywhere from five to seven hours total for an engagement.   

With our new systems in place these is what we are looking at:  

  • Ten minutes for preparation of online proposal and engagement letter.  We include an option for our clients to prepay for the tax return or at least put a deposit down.   

  • We send the client a link to our calendar and they choose a time that works for them that we have open to schedule a meeting.  We spend no time on this.   

  • Forty-five minutes to import the bank statements and use the cash coding feature in Xero.  

  • One to two hours of tax prep 

  • Total we are looking at about two to three hours total for the engagement.   

What does this mean?   

  • Traditional conventional methods = 5 to 7 hours 

  • Utilizing cloud accounting technology = 2 to 3 hours 

  • Average savings = 4 hours.   

This is just for these situations.  If I can save 4 hours preparing a tax return and do it for about 5 different tax returns that is an additional 20 hours that I can save.   

My question to you is what would you do with 20 extra hours?  For us we used it to scale up without having to bring in more staff, ability to go out and network, and most importantly spend time with my family.   

This is why I am such a big proponent of Xero and cloud technologies.  This is why I am a big proponent of the cloud implementing the correct technology.