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Part 1: How implementing Xero will save $50,000... Easily.

David Rynne - Tuesday, October 16, 2012

Each year, I assist a fellow chartered accountant with the audit of a privately owned importing and wholesaling business located in Sydney. 

At the end of the 2012 audit, I had the opportunity to demonstrate Xero to the CFO and show how I am streamlining the accounting process for my clients. After running through the basics, I demonstrated how the management reports that just drop out of Xero.

The CFO was completely astounded by the speed and efficiency of generating the management reports, the quality and flexibility. 

This is just the beginning.

Background to the business

The business has been established for 20 years. It is an importer of products from China and South East Asia and sells to major Australian retailers. With a turnover exceeding $50 million, it is a typical medium to large business.

It employs a CFO and two assistant accountants. Attaché is used for general ledger, debtor management, creditors and payroll.  Industry specific software is used for customer invoicing and inventory management.

The Australian branch of an overseas bank provides currency hedging, trade finance facilities and the Bank works well with overseas suppliers.  However, internet banking is not utilised.

Cheques and signed fax requests to the bank for electronic transfers are the most common way of paying suppliers and employees.  The business owners believe the ‘paper trail’ provides good internal controls and I agree with this.

The current accounting processes

The current process has not changed in the last 20 years.  


Creditor invoices, customer payments and cheques are entered and processed via Attaché during the course of the month. At the end of the month, the bank statements will arrive by mail and the accountants will start the bank reconciliation process. This consists of manually summarising the monthly electronic transactions in Excel (payroll, trade finance, direct debits) and preparing a general journal entry to the Attaché ledger.  

The business has two $USD bank accounts which are converted to $AUD and manually summarised in Excel.

Staff members who frequently travel overseas prepare and submit an Excel summary of their expenses to be reimbursed.

About one week after the end of the month, the accountants have completed the reconciliation process. The ledger is updated and the CFO produces a management profit & loss and balance sheet. This P&L is then used to manually update an Excel spreadsheet with budget figures.

Xero : The Game Changer

The accounting process is a very manual, slow, time consuming effort.

The aim of implementing Xero would be to streamline and introduce automation into the accounting cycle so that these manual tasks can be minimised or eliminated.

Banking

The businesses owners do not wish to use internet banking or shift banks to one that provides bank feeds. That’s ok.  Xero can be used without an electronic feed.

A decent scanner with OCR can be used to convert the weekly bank statements into CSV files. These are imported into Xero. Rather than being an end of month activity in Excel, the bank reconciliation is an easy process of coding and matching transactions.  

 For the USD bank accounts, the bank statements also scanned and imported via a CSV file.  Xero will then handle all currency conversions and provide details of realised and unrealised losses and gains.

 Sending debtor invoices from the specialised industry system into Xero should also be a simple process of export TXT or CSV, match the fields and then import to Xero.

Expense reports

Staff members are able to submit expense claims for reimbursement via the Xero Touch App while scanning and uploading copies of receipts. Management can then review and approve without having to flick through a stapled mess of invoices or envelope of loose dockets.  

Payroll

With over 50 staff, the business spends a considerable amount of time on payroll and HR management.  Attaché charge an additional fee for the payroll module.   

The Attaché payroll system is not relied upon to accurately track leave. Once again, this is a manual, Excel spreadsheet. Leave applications are also a, paper based manual approval process.

Xero payroll is fully integrated and included in the monthly Xero subscription.  Payslips are emailed to staff rather than printed and distributed manually. Leave applications are electronic forms.

With the savings by not needing to pay for separate Attaché payroll updates,  the business could invest in another cloud based solution such as enable HR.  Payroll and HR can be an expensive minefield if it is not managed and documented effectively. Just ask anyone who has dealt with Fair Work Australia or has had a payroll tax, workers compensation or superannuation audit.

Reporting

The best feature of Xero for the CFO will be the speeding up of the reporting cycle and the elimination of the manual processes.

Rather than keying profit & loss data into an Excel template, budgets are set up in Xero and are then used in budget v actual management reports. The already comprehensive reports are customisable within Xero so that management can chose what detail of information it wishes to see.

In addition, using Spotlight Reporting in conjunction with Xero provides more in-depth management reporting and business analysis.   

Audit

From the auditor’s perspective, the ability to drill down from reports to actual source transactions (as distinct from deciphering a monthly Excel summary) and being able to review the audit trail transaction histories will speed up the audit and save time.  

 As Xero is cloud based, the auditor can login remotely at any time carry out reviews without the need to travel. The audit also moves from substantive testing, year end job to a controls based, year-round audit.

Implementing Xero

No new system is implemented in a $50 million business at a whim.  It requires planning, training and a staged process.

This is an organisation where implementing Xero will fail unless management can be convinced of its worth. 'Buy-in’ must be achieved from the accounting staff who are entrenched in old habits and resistant to change.

The first stage of the Xero implementation will be roll out Xero to a small subsidiary company. This will be used as a testing ground to gain familiarity and train the current accounting staff. It will also be used to refine the reporting process and test procedures.

The second stage would be started after stage 1 has been successful and the Xero benefits are proven. This would start May 2013 for the wider organisation.

How will this business save $50,000?

$50,000 is the amount in one year this business will save in time, wages, lost productivity and other saved costs by going with Xero for business management.  It is a conservative estimate of the cost savings.

However, the upside in better management reporting, a deeper understanding of the financial position of the business, and better decision making could be worth hundreds of thousands more.

Part 2 The Xero Implementation - coming soon