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There are lots of online accounting choices for freelancers and small business owners. Because of this, it can make it difficult to pinpoint which one will work best for your personal business.
Sometimes this means finding a local CPA or accountant who can handle the books for you. Or perhaps hiring a freelance bookkeeper to manage the day-to-day finances so you don’t have to.
The only problem with this is that hiring out bookkeeping and accounting can get expensive. Here at Careful Cents we’re all about cutting business expenses and empowering YOU to be the master of your money.
This is where Xero Accounting comes in! Thankfully, Xero is paving the way for a full-service bookkeeping program that’s also budget-friendly.
Here is my honest Xero Accounting review and how to use it as a self-employed freelancer or small business owner.
What is Xero Accounting?
Xero is an online accounting system that’s been around since 2006. While still fairly new, compared to a company like Intuit’s QuickBooks, it offers an extensive array of bookkeeping features. As a web-based accounting program, you can access Xero on your desktop or through the mobile app on your tablet or smartphone.
As someone who has over a decade of small business accounting experience, I was actually thrilled to test out Xero for my own freelancing needs. Instead of a more simplistic accounting approach, like the one that FreshBooks takes, Xero is basically for the money-minded business owner who can’t afford to hire a CPA to manage everything.
While it’s a bit more complex, with in-depth financial reports, chart of accounts, bank reconciliation, invoice features and payroll options, it lives up to its reputation. If you’re ready to take more control of your freelance finances, give Xero a try.
It can seamlessly handle any type of financial information, even if your business is more complicated or deals with lots of moving parts.
How to get started with Xero
As a freelancer you’re probably wondering exactly how Xero will work for your business. Thankfully, they offer a completely free 30-day trial so you can test out the online accounting features without any risk.
Seriously, there’s no credit card or payment information required.
1. Sign up and activate your free Xero account
When first getting started with Xero you can sign up for a completely free trial account. Then, you’ll have to confirm your email address and set a password to activate your new account.
Next, you’ll fill in the name of your business and tax information. If you’re using QuickBooks, or have in the past, you can convert the files for free in this step.
2. Connect your financial accounts
Start by connecting your bank account, credit card or PayPal accounts. It took about 30 seconds for my bank information to be connected. Click the All Available Transactions option (usually this is the past 90 days or so) and it will begin to sync your checking account. Once this step is finished go back to Dashboard.
3. Organize your business details
When your transactions have been imported it’s time to organize your business details. This includes adding a payment service for accepting payments from clients and customizing business invoices.
You can also add a business logo and the legal entity name of your business, whether it’s an LLC or sole-proprietorship.
4. Customize your personal chart of accounts
Create your personal Chart of Accounts, under the Settings tab (categories for expenses and income). To edit a chart of account just scroll over and click to insert a customized name.
For example, I updated the Sales chart of accounts to reflect Freelance Writing income since this is my most common form of revenue. And then added other income streams such as Affiliate Sales (#410) and Coaching/Consulting (#430).
To customize your own chart of accounts, click on Chart of Accounts in the Settings tab. From here you can edit different accounts, add new ones or delete ones that don’t fit into your business model.
5. Reconcile all bank feed transactions
The most important step when setting up your Xero account is to reconcile all of the transactions that come through your bank feed. This can be done under the Dashboard or Accounts tabs. Click the Reconcile items button to get started.
Like with most accounting software you have to spend a good amount of time categorizing the transactions, and the chart of accounts, in order to see the best results from the program.
You also have to Edit many of the transactions because they are pulled into Xero using the net amount that hit your bank, which doesn’t account for taxes, fees paid to PayPal, etc.
If you work with a bookkeeper or assistant you can give them access to your Xero account with their own login information. That way they can organize the transactions and chart of accounts for you.
Another cool feature is that if you don’t know what kind of categories to set up, or how a transaction should be categorized, you can leave a comment in the Discuss section of the Reconciliation tab (see screenshot below). Then your bookkeeper or accountant can leave their own comments, or simply reconcile the transaction for you.
Xero Accounting features for freelancers
I’m always on the lookout for the best online accounting programs for freelancers so I can share my honest results with you. This saves you the time and headache of having to test out new programs.
There are some major features in Xero that I find really helpful for freelancers. For starters the Dashboard is an all-in-one snapshot that displays how your business is doing financially, in any given month.
You can also customize how this looks to show specific income or expense categories, unpaid invoices, expense claims, bills due and more.
Their mobile app is also quite addicting (at least to me, ha!) as you can literally do your accounting work on the go. You can easily reconcile transactions that are imported from your bank account, capture pictures of business receipts and create new client invoices.
Speaking of invoices, this is a key part of being freelancer and something that Xero covers very well. You can easily customize your invoices with your brand’s name, colors and logo. You can also add lines for sales taxes and other expenses, such as receipt reimbursements.
Receiving payments from clients is very efficient too since Xero Accounting works with payment providers and other connected apps, such as Stripe and Zapier. You can also choose to only accept credit cards, PayPal payments or both.
Xero Accounting pricing plans
One thing I really like about Xero is that they seem to have small business owners in mind. From the way the product works to their pricing plans it’s all very functional and budget-friendly.
- Starter – costing $6 per month, the Starter package from Xero allows you to create and send 5 invoices, 5 bills and reconcile 20 bank transactions. You can import tax software as well as prepare W2s and 1099s. With all the pricing plans you can have unlimited users and access to customer service help 24/7.
- Standard – costing $21 per month, the Standard package is the most popular choice for small business owners. This option gives you all the features of the Starter package plus payroll for up to 5 employees with direct deposits and the ability to file and pay your income taxes.
- Premium – costing $49 per month, the Premium package is the most advanced accounting option. This packages offers all the features of the Starter and Standard packages plus payroll for up to 10 employees with direct deposits and the ability to work in multiple currencies.
The great thing about Xero is that if you’re not sure which package to choose, you can sign up for a free trial account — no credit card needed — and upgrade as you go along.
What would make Xero Accounting better?
One thing about Xero is that it’s a bit time-consuming to set up and at first I was a little turned off by the process. But once I started seeing results of my bank reconciliation and how Xero aggregated my transactions, that’s when magic started happening.
For me, the added time of setting up the chart of accounts and categorizing the transactions was worth it. You only have to do it once, after all.
Another downside to using Xero is that it doesn’t offer time-tracking features for specific projects. As a freelancer I like to track my time so it’s easily billable at the end of the month when I’m creating invoices.
And Xero doesn’t have this feature built-in. However, they do connect to other third-party apps that allow you to track your time and import it into your Xero account.
Click here for a full list of their time-tracking and other third-party apps.
Should small business owners use Xero?
Would I recommend this product? Yes. After a good amount of testing, I find that Xero offers excellent accounting features for freelancers and business owners. It has more robust features than other accounting programs and may take a few days to get the hang of everything.
But at the very least I think it’s worth a try and if you don’t like it there’s no harm done. Ready to test out Xero for yourself?
Click below to sign up for a free trial and get 30% off with promo code: XERO30