Our product analysis series draws on insights from our client’s experiences and feedback, providing a comprehensive view of the systems they use and the reasons behind their choices. This installment focuses on Xero, a popular choice among small-to-mid-sized businesses that seek a balance between ease of use, cost-effectiveness, and functional depth without the overwhelming complexity of full-scale ERP systems.
What is Xero?
Xero is a foundational cloud-based accounting system that appeals to small and mid-sized businesses. Ideal for those just starting out, Xero offers a step up from basic tools like Wave and FreshBooks, providing an affordable yet comprehensive solution.
Xero is known for its intuitive interface and ease of use, making it an ideal choice for businesses that want to get started quickly without extensive training. Designed to facilitate financial tracking, real-time reporting, and integration with numerous applications, it has become a go-to for small business owners, bookkeepers, and accountants in sectors like retail, eCommerce, hospitality, and creative services. Xero stands out for its global reach, user-friendly design, and scalability, allowing businesses to continue using the platform even as they expand.
Key Features
- Core Financials: Xero provides essential features such as a general ledger, accounts payable, accounts receivable, and cash flow tracking.
- Real-Time Dashboards: Offers live dashboards and reporting tools for comprehensive financial visibility.
- Multi-Currency Handling: Xero manages automated currency conversions, exchange rate tracking, and multi-currency accounting and reporting.
- Invoicing and Billing: Simple and customizable invoicing and billing options.
- Expense Management: Automates expense tracking for smoother cash flow management.
- Integration Capabilities: Connects with over 1,000 third-party applications, including Stripe, Gusto, Shopify, and Square.
- Mobile Accessibility: Allows on-the-go access through a user-friendly mobile app.
Market Share and Users
Xero has established itself as one of the leading small business accounting solutions globally, particularly in countries like Australia, New Zealand, the U.K., and increasingly in the U.S. Its market share is around 7% in the U.S., placing it as a distant second competitor in the small business accounting space to QuickBooks Online. The platform is particularly popular among small businesses, startups, and freelancers who need an affordable and scalable accounting tool. A Xero vs. QuickBooks (2024 comparison) in Forbes provides an in-depth look at how these two platforms stack up against each other, highlighting their strengths and differences. Xero’s open API encourages developers to create apps tailored to specific needs, further solidifying its presence in the tech-savvy small business community.
Regarding go-to-market strategy, Xero has employed strategic initiatives to expand its market presence, particularly in the U.S., where it has been focusing efforts in recent years. A key part of this strategy includes investing in a robust network of accountants and advisors, equipping them with the necessary tools and certifications to support their clients effectively. Through its partner program, Xero provides these professionals with resources, exclusive features, and certifications that help them broaden their service offerings and become trusted advisors. To further bolster its U.S. presence, Xero has hosted events like XeroCon, their major conference, which took place this year in Nashville. Additionally, since 2022, they have launched smaller “roadshows” across popular U.S. cities, offering a day of learning and networking. These efforts position Xero as a valuable resource for those dissatisfied with other systems, reinforcing its commitment to community engagement and growth within the accounting industry.
Wins and Losses
Wins
- User-Friendly Interface: Xero’s clean, intuitive design makes it accessible for users with limited accounting experience.
- Cost-Effective: Generally, Xero is more affordable than many of its mid-market competitors, with straightforward pricing tiers.
- Integration Flexibility: With a wide range of app integrations, Xero can easily accommodate industry-specific needs.
- Global Accessibility: Multi-currency support and a global user base make it attractive to businesses with international operations.
- Cloud-Based Flexibility: Being fully cloud-based, Xero allows secure remote access and reduces IT overhead.
Losses
- Limited Scalability for Larger Enterprises: While suitable for small to mid-sized companies, Xero may not scale well for organizations with extensive financial management needs, such as complex multi-entity consolidations.
- Advanced Reporting Limitations: While functional, Xero’s reporting capabilities lack the depth of larger systems like Sage Intacct or NetSuite, which provide more customizable, granular reporting.
- Learning Curve for Customization: Although simple for basic tasks, customizing reports and workflows to suit unique business needs may require advanced training or add-on tools.
- Dependence on Add-Ons for Certain Features: Xero relies heavily on third-party apps for specific functionalities, which may introduce additional costs and dependency on external support.
What Amalgam Customers Say
Customer 1:
“Xero’s price point is attractive. It’s generally less expensive than alternatives, and they often offer special discounts. Overall, it’s a system we like. It has some quirks, like the ordering of columns in reporting and the reconciliation function, but Xero is a popular tool among our clients and team.”
Customer 2:
“I have a handful of clients who use Xero. Overall, it works, but I much prefer QuickBooks Online. QBO is more intuitive, the reporting is better, and our team is more accustomed to using it. Given the chance, I’d choose QuickBooks over Xero every time.”
Customer 3:
“Our firm is based in the U.K., and most clients use Xero. It’s an effective General Ledger tool for their needs across bank reconciliations, invoicing, and creating journal entries.”
Our Recommendation
We recommend Xero for small to mid-sized businesses that prioritize ease of use and affordability, particularly those that rely on app integrations. Xero is an ideal choice for businesses that need a scalable, cloud-based solution with the flexibility to customize via third-party applications.
Choose Xero if you have:
- A small to mid-sized operation with basic accounting needs
- A need for integration flexibility with other business tools (e.g., eCommerce, point-of-sale systems)
- Limited administrative resources for onboarding and training
Consider a mid-market solution like Sage Intacct if you need:
- Robust financial analytics and customized reporting for deeper insights
- Support for multi-entity and inter-company transactions
- Advanced automation for processes like revenue recognition and project accounting
In summary, we recommend Xero for small to mid-sized businesses that need a low-cost, user-friendly, cloud-based accounting solution with strong integration capabilities and a supportive partner network. While it may not match the extensive feature set and integration options of QuickBooks Online, Xero still offers robust functionality suitable for businesses prioritizing simplicity and collaboration. With its scalable features, Xero is an excellent option for companies looking for a straightforward system to grow alongside their financial management needs.
