Xero is one of the first pieces of software a start-up will purchase. In Australia, New Zealand and the UK, Xero tends to be the accounting tool of choice. As your start-up begins to scale, you might feel like you're spending more hours trying to integrate Xero with other apps than actually adding value to your business.
This article covers nine of the most common Xero limitations. It will help your start-up finance teams determine if you should migrate from Xero.
1. Lack of visibility
Xero is best suited for single-entity businesses. Companies generally create a new Xero entity when they enter a new market. For a scaling start-up, problems quickly compound, making it hard to get a consolidated view of the company's performance. You will struggle to do this from Xero if you need real-time insights.
- Do you have multiple Xero accounts for operations in different countries?
- Do you need to track non-financial data e.g. headcount, floor space or returns?
2. Limited automation
Xero isn't as automated as some of the newer accounting software on the market. You will have to do more manual data entry, which takes up your valuable time. Xero is investing heavily in its third-party marketplace to fill the gaps, but ultimately, you need to spend more time configuring and setting up these tools.
- Are you sending the same reports to stakeholders each week/month?
- Is your company dashboard built on a spreadsheet?
3. Inflexible reporting
Xero's reporting function is inflexible. Creating custom reports is complex, and you become reliant on spreadsheets. If you are looking for metric-level reporting or forecasting, you need to do this on a spreadsheet or with third-party software.
- Does your general ledger feel bloated?
- Do your company require custom metric reporting?
4. Data complexity
Do you want granular insights into the start-up's performance? Do you constantly install third-party software to fill the gaps that Xero can't provide? The more tools you piece together, the more complex your data becomes to manage. When you begin to scale, this scattered approach to data creates a compounding issue that becomes more difficult to correct as time progresses.
- Do you need more granular user permissions?
- You don't have 100% confidence in your data
5. Over-reliance on spreadsheets
Do you spend most of your day in spreadsheets reworking data from multiple sources? If someone overrides a formula, can it break your consolidated financials? Spreadsheets are powerful, but there is a risk when multiple parties have access and can edit. When you scale your finance SaaS stack, you should aim to handle as much reporting in your accounting system as possible. Reduce your margin of error, and have more confidence in the output.
- Is the bulk of your reporting built on spreadsheets?
- Does your start-up need API access rather than creating workarounds on spreadsheets?
6. Overuse of third-party tools
Are you constantly plugging gaps in Xero with new tools to create workarounds or provide better insights into the business? If you have multiple entities, you likely need to use double the number of tools to pierce everything together.
Migrating to larger ERP systems like Netsuite, Financial Force, or SAP means that these 'workaround' solutions are already out of the box. There are substantial costs upfront to migrate, so you need to be able to justify the investment.
- Do you know every piece of software that's used in your finance SaaS stack?
- Do you regularly need to optimize your SaaS stack to eliminate redundancies?
- Are you paying for the same tool multiple times to accommodate for different entities?
7. Scalability problems
How confident are you that your stack can handle the increase in volume if you offer a new product or service? If you are processing more than 35,000 transactions per month, you're likely pushing its limits. Xero starts to break when you go past this level, and you may not even be able to run a GST report without support.
When you think about scaling your finance Saa stack, it's rarely a linear journey. Scaling your finance SaaS stack is rarely a linear journey. It requires trial and error and needs to evolve continually with the business's requirements. Xero breaking, unexplained errors, or a lot of workaround solutions are all signals that you're beginning to outgrow Xero.
- Do you process more than 35,000 transactions per month?
- Are things' breaking' in Xero that you can't explain?
8. Handling multi-entity
If you are expanding globally and you have multiple Xero accounts in different regions, then it's likely you've begun to push Xero to the limit. If you are finding it challenging to pull together your monthly reports or you're heavily reliant on spreadsheets, it may be time to reconsider this approach.
- Does your month-end include a consolidation process?
- Are you trying to automate your intercompany journal entries?
How global are your operations? If you are operating in multiple countries with different currencies, you must have an accounting system that can handle real-time currency. Xero has begun to invest in this area, but there are still significant limitations.
Ultimately, the most critical question you need to ask is whether your finance team is getting an adequate ROI on their SaaS stack. Migrating is complex, time-consuming and emotionally taxing on the whole team. You must be confident it's the right move.
- Do you have operations in multiple countries?
- Do you hold substantial cash in different entities and currencies?
Where to from here?
If you still can't decide, why not ask another finance leader who has been there or done it before? This can be done through Finance in Tech, our vetted community of nearly one thousand finance leaders from around the world. Receive advice on all the most pressing questions, like whether you've outgrown Xero.