With a new business year ramping up, it’s time to crystal ball the year ahead for a sense of how the economic landscape will play out.

The bad news
You’d certainly be forgiven for feeling some sense of caution given the doom and gloom forecasts that appear in newspapers and our inboxes everyday. As the European debt crisis continues to loom large, we are reminded each day about the troubled retail sector, which here in Australia grew only 0.3% in 2011 – the worst result in nearly 30 years. Domestic tourism and manufacturing is still being hit hard by a strong Australian dollar and the continued weakness in the housing sector is seeing a slump in construction and associated industries. Together with continued volatility in our financial markets and the real risk of a slow down in China, it’s no wonder business and consumer confidence is suffering. But it is not all bad news.

A silver lining
The last quarter of 2011 saw the Reserve Bank of Australia (RBA) cut interest rates for 2 consecutive months offering some relief to consumers and small business owners. Moreover, when you reflect on Australia’s GDP growth in 2011 it was a very respectable 2.5%. Underpinning these figures was household consumption at 3.8%, and while consumer spending was clearly not flowing through into the traditional sectors of retail and housing, some parts of the economy were benefiting such as travel, transport, home services, healthcare and technology/online. With the $A expected to decline over the course of this year and the RBA demonstrating a willingness to shield the Australian economy from risks abroad by easing monetary policy, there are some positive signs out there.

Accounting services in demand
So what of the accounting industry? The latest IBIS World 2011 Market Research Report on Accounting Services in Australia, forecasts average annualised growth for the industry of 5.5% to 2016-17. I conducted my own field research while travelling to all the major capital cities in December to catch up with many of Xero’s most loyal partners over a few end-of-year drinks. While not a statistically valid sample, I was overwhelmed with the number of accountants and bookkeepers that told me they were flat out and doing very well despite the current economic conditions.

One thing we can be sure about is that small businesses need accounting services and good advice. This is accentuated when times are tough. Hamish outlined what small businesses look for in an accountant in his recent blog and if you’re giving good advice, promoting innovation and delivering excellent service, your practice should thrive. So for me, rather than stoking the fire of discontentment about our hapless and fragile economy, I’m taking a positive outlook. Here’s why…I know small businesses need their accountants. I know they want innovation, simplicity and ways to save money. And, I know Xero, and the efficiency gains we offer to both the accountant and client, are compelling. Hence I feel optimistic about our industry and what we are doing.

Xero keeps growing
I’m pleased to say we’re continuing to invest in the business and right now we’re looking to hire six new staff in Australia. The first role we’re recruiting for is a new National Sales Manager for our accounting channel. Wayne Schmidt will shortly switch his focus to our fast growing bookkeeper channel – watch for extra resource and investment in this area throughout the year! We’re also seeking an Events/Sponsorship Manager, two Associate Account Managers and an Enablement Specialist in NSW to further build our presence in this key geography. So if you know of anyone who you think would love to work at Xero and who shares our optimism about the future, send them our way.  

Here’s to a prosperous 2012!!!

We’re just a few months away from the integrated Xero Payroll for our Australian customers, but in the meantime you can access Paycycle from your iPad or other tablet. Who would have thought payroll could be completed anytime, anywhere? Employees can access their dashboard from almost any device, and even apply for leave from their phone.

For the time being, you can continue to access Paycycle from https://go.paycycle.com.au, but watch this space for updates on integrated payroll. An exciting year ahead!

As with many of my IT colleagues, my career has been shaped by years of working in large multi-national corporations. While there’s certainly a lot of valuable experiences and knowledge to be learned along the way, you sometimes witness what I would call “cultural train wrecks”. These become even more apparent once you are out of the big corporate game and running your own gig, or at least overseeing something on a much smaller scale. Hence you promise you will do things differently.

Taking the reins of Xero in Australia in February 2011, I felt both excited and a little anxious about having total responsibility for shaping the culture and personality of a new and fast growing business and team.

With the acquisition of Paycycle and more sales and support staff we recently moved to an office in Hawthorn, which we hope will be the next phase of expansion in Australia.

Work hard, play hard

One of the best things has been to transform a 100 sqm data centre on Level 1 to a full blown rock ‘n’ roll music studio. Try that in a big corporate.

I’ll admit my influence here, but with at least 5 other Xero staff boasting various musical talents, this became an obvious use for a space otherwise reserved for racks of servers and cables – hardly something we needed when everything we do is in the cloud. Jam sessions (pictured) are emerging as a feature on a Friday after work.

Building our community

Another epiphany was setting up a hot desking area with the view that Xero is “open for business”. For example, we’ve just started sub-letting desk space to one of our accounting partners who needed extra room. We will also be offering further desk space to a small number of Add-On partners that have solutions which integrate with Xero and who want to establish a footprint in Australia, but minimise startup costs.

We’d also like to encourage our accounting and bookkeeping partners to come and visit us whenever they are in our neck of the woods and need somewhere to work. Xero is richer for its partner ecosystem and this philosophy should extend beyond the product to the people we support, and those who support us.

Symbols of informality

As for how Xero staff work, this is much like a start-up environment. There’s a complete absence of any individual offices. It’s open plan all the way, with breakout rooms used for making private calls. The 2nd floor is also scattered with beanbags, posters, coffee tables and funky seating areas. And there’s a staff room where the team can chat over lunch or enjoy a social drink at the end of the working week whilst shooting it out on Xbox Halo… I’m told Kinnect is on the way.

It’s amazing how much impact you can make without spending a lot of money.

Help name our office band

But back to the band… we know there is a great deal of talent out there so we will be recruiting musicians from across our many partners to form an all star band to play at Xerocon 2012. We figured we would need a band name, so why not send us your suggestion? The line-up so far includes Bachman-Turner Overdraft; Clouded House and my favourite Joel Hanna and the Bad Debts.

We’ll pick the best suggestion and announce it in the lead up to #Xerocon 2012.

What we’ve released today for Australian customers should greatly help with this. You’ll remember we added address lookup features to New Zealand organisations earlier this year and today we’ve added this for Australian organisations too. When you lookup addresses with the service in Xero, not only will it greatly reduce data entry, but the formatting is taken care of too.

We’ve worked with Sensis TotalCheck on this and there’s a few reasons why. First and foremost it’s because we complement each other. We’re both committed to helping small business in Australia and committed to connecting businesses online and in the cloud.

Secondly, Sensis TotalCheck uses White Pages as one of its data sources. White Pages is a rich data source, constantly updated and holds more than 7 million business and residential listings. Names, addresses, phone numbers are stored against them as well. Sensis TotalCheck also uses the Australia Post Postal Address File (PAF) as an address datasource, so in the unlikely event your lookup doesn’t find a match from Sensis, the PAF will be searched automatically and addresses looked up from there instead.

Lastly (but maybe this should be firstly) we really wanted to offer small businesses access to the same quality address services as big business. We’re proud that we’re the only online accounting product to offer this service with Sensis TotalCheck – possibly the first small business accounting provider to do this worldwide? (I’m willing to be corrected on this).

It’s exciting to think where this could take us. Future developments could include retrieving phone numbers for matched names and addresses. Other initiatives we’re looking at with the team at Sensis are ABN retrieval and email address retrieval. Imagine that!

It’s a world of possibility. Let us know what you think.

For me the new online world was a great way to build a client base and passive income, but it also helped me service clients better and meant my time really was value for money. Nevertheless there are two big concerns that I keep hearing at conferences and these are often a topic of conversation on our LinkedIn group.

• Are bookkeepers becoming redundant with the rise of cloud accounting?
• Are bookkeepers going to lose income, as data processing becomes more efficient and we aren’t spending as much time on-site? (Remember, traditionally bookkeeping was an hours game.)

The short answer is NO to both of these. And the great thing is that progressive bookkeepers are starting to understand this.

Let’s deal with the redundancy problem first. Firstly not all bookkeepers do the same thing. Secondly accountants and business owners will not (and should not) replace bookkeepers. It’s widely accepted among small business owners that their focus should be “on the business”. The bookkeeper’s role is to help “in the business” – if they keep the house in order business owners can get on with what they are good at and what they went into business for. Like Sam from AccountsHQ says, “Business owners want to spend their time making money, not accounting for it”.

As for the income and efficiency dilemma, this is more of a mindset shift. If your accounting software is making your bookkeeping work more efficient and your productivity is increasing, this should not be regarded as a bad thing. On the contrary, you have an opportunity to reposition your work from mere (and boring!) data entry tasks to more value added offerings that are ultimately more sustainable and better for you and your clients.

From my experience, the on-site/off-site is not really an issue for business owners. Typically they would like to see the bookkeeper’s face (have you onsite) maybe once a month, but for them the important thing is that their business books are kept up to date, regardless of where the bookkeeper is sitting.

If you’re interested in this new business model and in particular building your online strategy, Wayne Schmidt holds a free webinar that covers this and provides other helpful tips.

We’d love to hear your thoughts on this topic, from all points of view.

“I think the glory days of the reactive accountant who makes $350K plus profit per partner are coming to a grinding halt”.

I could not agree more, although I am not sure it will be as rapid as Rob suggests.

In the report Rob introduces a new KPI called the Sustainability Index. This index measures the reliance of a firm on the partners. It says, if we remove the partners, what does the profit look like. The results will astound you. The survey calculates an index of minus $9 – meaning $9 lost per hour contributed. This begs the question, why have staff, an office and so many clients if there is no money to be made from it?

Rob looks at the effect the cloud has on accountants and he likes what he sees (so do we).  All the big tick items are mentioned, like being connected, the benefits of real-time and a 30-40% reduction in the time it takes to produce annual and management reports.  Like Rob, I agree that we are seeing a commoditization of compliance accounting and firms need to evolve and make management reporting and business improvement the basis of the relationship.

Rob notes that business owners are now far more savvy and aware of evolving technologies and starting to ask the tough questions. Trouble is most firms do not have the right answers, yet. He talks about a sea of sameness in the industry – perhaps its time to act a little different? The impetus to change is certainly happening in other professional services inlcuding financial planning, banking and the insurance industry. These other groups seem to be branching out into the value added services area. While some accountants recognise this, there’s a danger the profession isn’t changing fast enough.

The good news is there are a lot of great firms out there doing really well. One of the benefits of this free report is the ability of accounting firms to benchmark themselves against the better performing firms. I’m sure you’ll find there are ways to improve your practice, there always are.

You can find the full report here. For a snap shot summary of the numbers (in Australian dollars) click the table below:

After leading a number of startups in Australia, I can testify that being an entrepreneur is sometimes a lonely, difficult and thankless journey. But the satisfaction and pride that you feel having achieved just some of the goals far outweighs the sleepless nights and stress.

It’s inspiring to see the Australian startup community alive and thriving. At several events recently I’ve met energetic young people, who’ve left their well paying traditional jobs to ride the emotional roller coaster that is entrepreneurship.

One of the highlights was the StartUp Weekend Melbourne at digital incubator York Butter Factory for which Xero was the premium sponsor. It was amazing to see the ideas that the entrepreneurs are building out, from a marketplace for financial models, dynamic image and location tagging and analytics, to an all-in-one bottle opener & iPhone case. The greatest validation for us was that all these innovative startups are either using Xero or will use Xero in the future.

Congratulations to ThemePivot and Print My Life on their fantastic win. We were also thrilled to see our own and very talented Owen Evans be part of the winning team at the StartUp Weekend Wellington held in New Zealand that same weekend.

Learning from others

It’s one thing to be in a room of budding entrepreneurs on a mission, but hearing insights from those who’ve made it can be just as entertaining. Recently, Xero Australian Partner of the Year Guy Pearson of Interactive Accounting asked me to speak at IA meetup #3 – a great event for entrepreneurs. Here we traversed the topic: “business and online metrics”. What really struck me was the capacity these entrepreneurs have to resolve issues in life and in business with innovation and creativity.

As a company that has moved beyond the startup phase and raised significant capital, we believe Xero has a role to play to mentor and encourage the innovators of today and builders of tomorrow’s business environment. We’re looking forward to working with York Butter Factory and others as we expand our role in this arena in coming months.

As always we’re keen to hear your views, comments and suggestions on anything startup.

Twelve months went past really quickly and I was having a lot of fun, but when Xero called I couldn’t resist the urge to get back to helping small businesses prosper. Having my own gig really put a new perspective on it. I know the pain points, but there’s also an amazing feeling when you get to make your passion a reality.

My decision to become part of the Xero team again was really cemented over the last two weeks while on the road at our first Australian Education Roadshow for Xero partners.

We hit five cities, ran 20 individual sessions and connected with 1000 accountants and bookkeepers at all levels. The idea being that the partnership with Xero is like the product – ever evolving. So instead of being left to it, we’re there to help. Be it an introduction to the software, how to convert clients from legacy applications or talking through initiatives such as the Modern Practice or what’s coming up on the product roadmap. Getting feedback is important too.

Certainly the excitement and hunger for change in the way accountants and bookkeepers connect with their small business clients and run their practices was both overwhelming and inspiring.

This from Debbie says it all:

“Thank you for a great day, I learnt a lot. Walked into the partner’s office this morning and told him that I want to move all the clients to Xero and about Leanne’s great spreadsheet that showed the possible savings to a practice (said I could even get a pay rise). He agreed that we should move the clients across and has asked me to draft a letter to the clients. Exciting times ahead!”

Debbie Schubert MIPA, MCom(ProfAcc), Accountant, VIC.

Demand for the education sessions now means we’re planning more. We’d love to know what you liked and/ or what you’d change. Leave a comment below.

We’re delighted to announce Australian payroll provider Paycycle has over 1000 customers. You may recall Xero acquired Paycycle in July.

This is a fantastic milestone for the Paycycle team which is now part of the Xero family. It’s also testament to the team’s hard work given that the product was only launched 18 months ago. We’ve been extremely busy working toward bringing payroll into the Xero core product in Australia. As the co-founder of Paycycle I’ve been tasked with the responsibility to deliver this important project and I thought it timely to give you an update on our progress, as well as our proposed pricing and availability.

The plan had always been to switch Paycycle’s Silverlight framework for the much more broadly accepted technology base of HTML5. Fortunately, the timing of our acquisition by Xero allowed us to focus on this with even more determination and tap into the the fantastic talents of the design team based in Wellington, New Zealand. The result being all the great Paycycle features you’ve come to know in a beautifully presented, Xero style application.

In December or January we’re looking to release the new HTML product. Existing customers will continue to use the application from paycycle.com.au and apart from a significant visual change, all your data, past payroll, payslips and information will behave as normal. For the next few months Paycycle will continue to be a stand alone product until we are ready to release the entire integrated payroll functionality into Xero in Q1 of 2012.

The screenshots above and below give a sneak preview of what payroll in Xero will look like. Notice the style is closer to Xero Personal which is really setting the design standard for web applications.

We’ve also finalised our pricing for the integrated release. For Australian customers only, integrated payroll will be available under the Small Plan for one employee, up to 20 employees on the Medium Plan and unlimited employees on the Large Plan, which also includes automatic superannuation payments. There are no changes to the current pricing for Xero plans.

In nearly all cases those who use both Paycycle and Xero now, will enjoy the benefit of integrated payroll in Xero for the price of a only a Xero subscription. I’m sure you’ll agree this is a fantastic result for our joint customers and partners.

For Paycycle customers who are not Xero customers, we’ll be in touch early next year to work with you on the continuing arrangements. For Xero customers using the existing payrun functionality, you’ll be able to continue as normal for a period of time. Should you choose to move using the new integrated payroll,  that’s no problem, you can do that too.

Having built payroll once, and having received a great deal of feedback about what is good and bad, we’d like to make quite a few changes the second time around. However we’re still quite limited in what we’re able to do due to our primary focus for now being the conversion from Silverlight to HTML5. Once this first HTML5 release has been completed, we’re keen to incorporate even more payroll functionality with great design so that Xero’s Australian customers have the best integrated payroll imaginable.

Santa Teresa Bushmob Culture trek 2011

The not-for-profit (NFP) sector in Australia offers critical services to the communities they serve, and yet in the current economic climate it’s a sector that tends to get forgotten. Accessing funding and attracting skilled professionals are just two of the major challenges the NFP sector faces, but have you ever wondered how they manage the basics, like accounting?

Some may assume cloud accounting is the domain of the more innovative and tech savvy small businesses out there. But Morri Young who for 14 years has been at the helm of Matrix on Board – an accounting practice specialising in the non-profit space – would certainly challenge this view. “Many of our clients are indigenous social enterprises or non-profits, that work in isolated and challenging environments (such as Bushmob pictured above which runs programs for young people who are at risk of being disengaged and marginalized). “Because of Xero, we are as close to them as we are to our urban clients,” he says.

Morri has been a Xero advocate for several years, but many of his clients were skeptical until the benefits became apparent. “Xero has changed the way that we work with our clients – at last they can access high quality accounting support, even in the most remote places.”

One of the other big challenges for NFPs is complying with governmental processes. Many NFPs are recipients of government grants and this money needs to be carefully accounted for. It’s an area which often gets overlooked and has lead to cases of funding misuse due to poor record keeping, a lack of financial visibility and high turnover of accounts staff. “We provide an essential, high degree of comfort for our clients’ boards, because we keep a ‘second set of eyes’ on the accounts all the time,” says Morri. “And our reporting to the CEOs and the boards means that they now have up-to-the minute access to their organisation’s financial performance”.

Morri says Xero provides his team with a means of building capacity in these organisations. “We can train up local people to become bookkeepers and administrators; we can improve efficiency; we can save money at audit time, and we can ensure the organisations can fully explain how they used government and philanthropic funding.”

You’ll be pleased to know we’ve updated the previous annual accounts report with Aussie content (yes, we’ve even removed the LAQC option!) and provided a high degree of editing/content control.

Watch the video to see it in action.

Some of the features you’ll notice include:

• Australian content and familiar layouts related to specific entity types; company, sole trader, partnership and trust
• Optional Auditors Report
• Default textual notes can be removed and edited
• Control over sections and reports
• Editable Notes to Financial Statements
• Optional signature on Balance Sheet
• Layout options for Profit & Loss, Balance Sheet and Movements in Equity reports

Thanks to all our Partners (including Interactive Accounting, Five Ways, CountGPS & Hansens) that gave us feedback and helped with the review process.

The ability to create compliant annual reports for each of your clients is a huge deal, but we’re going to take this even further. Recently we started rolling out Report Packs for New Zealand and next year we’ll be offering the same functionality in Australia.

Report Packs give accountants the ability to create report templates at a practice level for specific client segments. These can then be shared across all staff in your practice and used to produce reports using any client data, all in an instant – regardless of the client’s chart of accounts.

You can do all the same cool customisations that are available at the client level including setting textual content, add new notes, customise layouts and much more

So stay tuned for the next stage of annual reporting in Australia.

Location is critical for any business and Melbourne was an obvious choice because it’s the home of our marketing partner ANZ and carrier partner Telstra. The city also has a great culture, which makes it easier to do business.

The Victorian Government’s Department of International Investment and Business Development (Innovation & Technology), has taken a keen interest in our progress, particularly as Melbourne builds its reputation as Australia’s information technology hub. So when we were asked to participate in a video about why Melbourne is a great place to start and develop a technology business, we were only too happy to help.

Thanks to the Victorian Government it was a great initiative to be involved in and we hope it strikes a chord when promoted to start-ups around the globe.

Meanwhile it’s getting a bit cozy in our Bridge Rd, Richmond abode. Being in this part of the city has helped us build valuable business connections, so we’re not looking to move far. It’s certainly true that the numerous cafés and restaurants have provided a more informal setting for meetings.

Right now there’s an intriguing business scenario playing out in Australasia. The combination of MYOB and BankLink has been the powerhouse of accounting small business software in this part of the world for more than a decade. Now it’s been reported that BOTH are up for sale. This has huge implications for the tens of thousands of small business owners and accountants in this part of the world.

Australian accounting software provider MYOB needs no introduction, but BankLink is not well known outside of the accounting industry. It’s a real New Zealand success story. BankLink provides banking feeds to accountants and business owners that allow accountants to process books on a cash basis, managing hundreds of thousands of bank accounts.

Last week the AFR reported that MYOB had failed in its bid to buy BankLink and that MYOB was looking to be acquired (again) having not found institutional support for a relisting on the ASX.

It’s understood Archer has terminated discussions with BankLink New Zealand about buying the business and folding it in with MYOB, Australia’s biggest accounting software provider.
As the story goes, PwC-advised BankLink, which is a supplier of live bank feeds, was seeking a higher price than the $NZ100 million ($80 million) tabled by Archer.

Now the deal has bitten the dust, it’s believed Archer Capital will start seriously considering strategic options for an exit of MYOB

And Merger Market followed up the story with comments from BankLink founders:

“After 25 years, BankLink’s owners are looking to pass on to another generation outside of the family.”

This morning the AFR reported:

Bain Capital and Kohlberg Kravis Roberts & Co. are among the potential buyers for Australian software maker MYOB, Reuters reported. A sale of the company could fetch around A$1 billion. MYOB is owned by Archer Capital and HarbourVest Partners, private equity investors that picked up the company in 2008 for roughly 450 million Australian dollars.

And then this from Merger Market today:

An Australian accounting software and services company, could be interested in Archer-owned MYOB, depending on price, said Reckon CEO Clive Rabie. After MYOB failed to acquire New Zealand-based accounting services provider BankLink during the week of 1 August 2011, Archer Capital and HarbourVest Partners LLC hired UBS to advise on the sale of MYOB, as reported.

You can deduce from this that thousands of Australasian small business customers are going to be sold to a new business owner. It also potentially marks the end of the old Windows desktop software model in Australasia.

Some background

The last generation of small business accounting software – the Windows generation – was won by three companies around the world. Intuit in the USA, Sage in the UK and MYOB in Australia. They cracked the model of retail distribution for installed software. They shared a large chunk of the upfront box price to the retailer and grew their revenue by gaining support contracts for maintenance, and improved their profitability by pushing that support to low cost fulfillment centers.

As public companies they acquired the surrounding companies in their space. Now 15 years on they are an aggregation of quite dated products. Traditionally if a new entrant gained market share or innovated, the incumbents acquired them and everyone was happy – except perhaps the end customers who became accustomed to not having innovation.

When setting up Xero we believed that the internet changes everything for small business accounting, and that a well funded new entrant had a chance of gaining market share by going for a pure online model. It takes a while to build such a big application as accounting and so far our strategy appears to be working.

Public company as a SaaS strategy

As part of our business strategy we decided to skip the venture capital stage and go public early. We did this for several reasons.

• We needed 50 people from day one, therefore we believed we needed at least $15m to fund the business.
• We could possibly have raised that from venture capital in Silicon Valley, but for an early stage company to do that we would have had a valuation not much more than $15m and the business would have been quickly sold so the VCs could make their money.
• We wanted to build a long term business, rather than just build up a technology asset and sell to a larger company. We’d sold businesses before as individuals, so with Xero, our senior team wanted to experience building a true global business of scale.
• We love small business. We feel a responsibility to make business more fun and make small business owners more productive. We get a huge kick hearing how much easier we’ve made the admin chores and that we’re getting normal people excited about technology.
• We also believe that for the SaaS industry, where your customers bet their business on you, being a public company gives a lot more transparency. Private companies are likely to be sold once they show their potential – which we think, makes it hard for end customers to trust that you’ll be around for the long term.
• As an entrepreneur I like that being public allows us to have more chess pieces for strategy. We can also be on the buy side, bringing more smart people into our team such as our recent acquisition of PayCycle.

So it felt right to become a public company. It gives us the resources to do things properly and build a great team. The results are coming through.

The cloud disruption

We’ve also seen a fundamental change in the industry which has been traditionally split in two. Client side accounting and accountant side accounting. The large providers sell products to both sides of the industry. These products have often come from different acquisitions, so are different codebases and file formats. Effectively the vendors have ‘double dipped’ by selling software to a small business to do its books and to the accountant to process the same set of data.

Over the last few years we’ve got the small business and the accountant on a single, shared, version of the data – we call it the Single Ledger.  And over the last year we’ve been rolling out accountant side functionality. This is incredibly disruptive to the industry. The roadmap the incumbents are delivering to accountants is expensive early 2000s style client server software, with dedicated servers and support. Cloud software is taking the cost away for the accountants.

At Xero we provide the accountant side software for free – why should the end customer pay twice? This is just a logical benefit of the cloud but a fundamental change to the industry. $10,000, $40,000 or even a $1,000,000 in annual licensing and support is what the accounting firm would expect to pay – this is now free. The Cloud wins.

Impact on incumbents

MYOB

While we’ve been on our journey, the incumbents have been going down a very different road. As stated above MYOB has been owned by private equity firm Archer Capital for the last two and half years. The private equity business model is to raise the economic value to the asset and sell it quickly. So MYOB acted logically under a PE model and cut costs to the bone, reduced investment and raised prices. The risk of this strategy is alienating customers. If you don’t have competition that strategy may even work, but I don’t think they understood how quickly the SaaS competitors would mature and grab market share.

The incumbents have also taken a compromised technology strategy. With their sunken investments in client side technology they have moved to a synchronization between desktop and online rather than the Single Ledger strategy. This is difficult and expensive to pull off and we believe will accelerate the adoption of pure cloud solutions.

If MYOB is sold to another private equity firm then it’s hard to imagine how it could create further value without a massive technology investment. It will be interesting to see if the new owners go for investment for more of the same grinding of the asset. How will they exit? IPO, split out the assets or will a bigger global player acquire?

BankLink

Last year BankLink received a grant from the New Zealand Government for NZ$2.1m to do Research and Development. However, BankLink does not appear yet to have responded to the shift to the cloud. Its products, though much loved and familiar to many, are now largely superseded by platforms such as Xero. While BankLink provides a good sunset revenue stream it does not provide technology innovation for an acquirer.

Reckon

Australian listed company Reckon is in an interesting position as well. They have traditionally had the leading accounts production (accountant side) technology, especially for large companies with their APS acquisition and have been the exclusive distributor for Intuit’s QuickBooks (client side). Intuit has not yet delivered the true online version of QuickBooks for Australia and Reckon doesn’t appear to have secured the rights for it at this stage, even if it does arrive over the next couple of years.

You’d also have to ask why Intuit would need a distributor anyway as online does not require boxes to be moved and in this new competitive market there is unlikely to be the margin to support a distribution tier.

So Reckon has been diversifying and appears to be following the strategy of MYOB in buying stakes in ISPs. The problem with that strategy is that it’s competing with your future online channel and ISPs haven’t yet been able to step up to offering high value services.

If Reckon buys MYOB, it still hasn’t resolved its issue of not having a world class online solution for the Australian market .

The impact

This is the most significant vendor flip the small business accounting space has seen in a generation. In Australia and New Zealand hundreds of billions of GDP are managed through these platforms – and now there is uncertainty on who will own those businesses. Two big customer bases are about to be sold out. Who will be the trusted custodian of these transactions?

I’m not sure the investors in the business have seen the impact the cloud is already having on the industry. They are buying sunset businesses that need to spend up big to catch up with technology – and the world is constrained by access to good developers who understand business web applications.

So the guard is most definitely changing. It’ll be very interesting to see what shakes out.

We listened

I’ve been at the helm of Xero in Australia for just under 5 months and so much has happened in that time. A week after I started we released Payroll in Xero that’s suitable for businesses with a handful of employees or pay runs that don’t change a lot. This was never designed as a full payroll solution, but boy did it spark a great deal of discussion among our accounting partners about where we might ultimately take payroll.

We have, and will continue to promote, a best-of breed approach whereby a number of Add-on Partners offer our customers payroll solutions. But it’s clear that an integrated and more fully featured offering is needed in Australia. It’s just expected that this will be part of the accounting software.

We looked long and hard at building this functionality ourselves, and while possible, we decided an acquisition was the fastest path to market and the one that would deliver the richest result for our customers.

Why Paycycle?

Unlike life in a big corporate where an acquisition is often incubated around a board room table amongst suited-up and stern-faced executives, this one started far more humbly, in a SUV car rental en route from Parramatta to Wollongong. Paycycle was a sponsor of our roadshow and after getting more requests for an integrated full payroll offering, the idea of combining the two took hold. It’s has been six weeks since that memorable first chat with Paycycle co-founder Stuart McLeod, and a lot of hard work has gone into making this happen.

What’s most encouraging about this move is the exceptionally positive feedback we’ve had about Paycycle, both in terms of its offering and also the calibre of its people. There’s a good cultural fit between our two companies and I look forward to welcoming them into our expanding team at Xero. We now just need to find a new office to house everyone!!

What this means for our Australian customers

We’re looking to complete the integration of Paycycle into the Xero platform in the first quarter of 2012. However, Paycycle will continue to provide the current standalone Silverlight version, and this will be upgraded to HTML5 before the end of October. It’s this HTML5 version of the software that will be integrated into the Xero platform.

Paycycle will continue to be sold as a stand-alone product until integration is complete. If you’re a Xero customer and use Paycycle you can continue to use it under the current pricing structure. Once under the same platform, you’ll then be able to access Paycycle from your Xero login.

We’re working through the pricing structure for our business customers and our goal is you will pay no more, and in most cases less, for the integrated product.

We’ll be in touch to let you know how the change affects you.

I spend a lot of time hitting the airports and hotels across Australia, presenting to accountants and bookkeepers about the virtues of Xero and cloud computing. The pace and the travel aren’t for everyone but I’m in my element meeting new people and seeing their faces light up when they realise how a new way of working can change their lives.

As we close the books on FY11, I’m getting ready to begin the new financial year with a Xero roadshow that’s a little different. Instead of racing around the airports and capital cities, I’ll be in a hire car, zig zagging across regional Victoria and New South Wales. The iPod is jam packed in readiness for the drive to 24 towns in just under three weeks – first stop Ballarat on 4 July and last stop Lismore on the 22nd. Yikes!

Having grown up in the small town of Moama in NSW, I’m well aware of some of the geographic, technological and infrastructural limitations of being based in regional Australia, particularly for businesses. But the world has changed, and with online accounting and the cloud, many of these boundaries are disappearing. Testimony to this are innovative accountants and bookkeepers based in regional centres who are leading the charge. Let me share some of these success stories.

No longer a tyranny of distance

A year ago David Gardner of Mildura based Southern Cross Business Advisors was looking for a solution to help him move his client relationships from one focused on compliance, to one of trusted business advisor. “Xero really has allowed us to attend to our client needs more efficiently and it makes them more appreciative of our relationship,” says David. The business has gone from servicing clients in the immediate Mildura vicinity to expanding into Adelaide, Melbourne, Broken Hill and beyond. “With Xero being online it allows us to access the information from clients at a click of a button, rather than waiting on a flash drive to travel hundreds of kilometres.”

Rural tradies embrace the change

A similar success story is Steph Hinds of Growthwise in Newcastle. I’d describe Steph as one of those new age tech-types who has embraced everything from Linked In, Skype and Twitter to help build her business and her brand. But hang on, surely all this technology would be a turn off to the country folk? Wrong. Steph started out with Xero two years ago by working for the more tech savvy small businesses such as web developers and engineers. Within six months she was approached by a number of trades people including painters and plasterers. “They needed a solution so they could prepare quotes and invoices. A bookkeeper could then take care of the rest of the transactions, yet it was easy enough for the client to look at exactly where they were up to,” says Steph. Today Xero is now more popular with Growthwise’s trade-based clients than with techies. Like David, Steph too is now doing business across the nation. “We have clients in Sydney and as far as WA, and the great thing about Xero is that we can still offer them the same level of service because we have access to up-to-date figures and can collaborate with them real time.”

Family life is back in the picture

My last success story is one that’s just getting started. Wollongong based Colin Dickeson of Altimate Consulting was a bookkeeper and MYOB die-hard and is now a Xero convert. “I have been involved with PC based accounting software for around 12 years and when I came across to Xero I found it so easy to setup, to use and to generate reports,” says Colin. He anticipates he’ll be able to triple his business using Xero, but there are some huge personal gains too. “Thanks to Xero I expect to have more quality time with family instead of working at weekends to process paperwork as this can all be taken care of as we complete each appointment”.

So if you’re an accountant or bookkeeper in regional Australia, make sure you come along to one of our Xero Partner events over the next three weeks. These events are especially for you and who knows, perhaps I’ll be writing about your success story in the not too distant future.

Check out where I’ll be, when, and register. And yes, Echuca/Moama is on my list!

Photo: Winter Sunrise, NSW Australia by thenoodleator, on Flickr

Australians have become all too familiar with the term ‘patchwork economy’ which refers to a situation where sectors that are exposed to mining are booming, while others are going backwards. Already commentators are predicting the Reserve Bank of Australia (RBA) will be forced to raise interest rates in June largely because of  unprecedented levels of investment in the resources sector and the effect this is having on inflation. The challenge the RBA faces is that while operating in a ‘patchwork economy’, monetary policy cannot manage all sectors of the economy.

Certainly one of the key takeaways from the Budget is the need for the Government to have a “plan B”, because too much dependency on the resource hungry China is risky and revenue forecasts rely on continued record highs in commodity prices.

I think small business investment should be plan B, after all, this humble and often forgotten sector employs 42% of the nation’s workers, represents 73% of all trading entities and contributes 46% to GDP.  As I’ve said in a recent presentation at KANZ and in my last blog a few weeks back, this sector is ripe for technology investment to boost productivity levels and make a significant contribution to GDP. Why not give small business the tools to prosper instead of relying on Asia?

What does the Budget hold for SMEs?

While the prospect of higher interest rates, a booming Australian dollar and a general skills shortage doesn’t bode well for small business owners, there were some elements in the Budget that are favourable to the SME sector. For instance new tax initiatives to help small business owners boost cashflow by taking advantage of extra deductions on the company car or ute, as well as instant write-offs for all assets under $5,000. Another boost to cashflow is the Government’s decision to bring forward the cut in the company tax rate to 29%. There’s also measures to bolster skills in the trade sectors, develop mentoring programs for employees and a continued commitment to the National Broadband Network for delivery of high speed broadband across the country.

Tinkering at the edges

The trouble is none of this goes far enough to realise the contribution to GDP small business could make. I think there could have been a greater focus on helping to drive productivity and in particular incentives to raise investment in technology. This is a view shared by the Australian Industry Group (AIG) which is calling for investment around innovation and business capability development. Retail bodies are also keen for some sort of technology funding scheme to encourage shop owners to move their businesses online so they can improve their marketing reach and compete with the influx of e-tailers at home and offshore.

While the future of Australia and economic prosperity is tied to factors outside of our control, namely China, investment in technology and innovation at home could help us break that reliance. This will lead to more jobs, more investment and who knows, maybe a better chance of a Budget ‘surplus’ in 2012/13??

When I joined Microsoft in early 1996, it was hot on the heels of the Windows 95 launch. For those that can cast their mind back that far, you may recall that for no particular reason the imagery used to brand Windows 95 was a series of puffy white clouds on a blue sky backdrop. So what? Well ironically, as I sit here contemplating life after Microsoft, it was “the cloud” in a very different context that served as a catalyst for me to ultimately leave a successful career at the software giant and head up Xero in Australia.

My background

I’ve been in the IT industry for over 21 years – the first six and a half years were spent at NCR in sales and the rest with Microsoft in a variety of senior roles in Australia. Most of my experience has been in dealing with the large corporate end of town, but I have also done stints overseeing Microsoft’s mid-market business; as manager of its marketing communications team; and most recently as Director for the Dynamics business. It was in this world of promoting Microsoft’s CRM and ERP solutions that I discovered a passion for the business applications market, and in particular, what was next as the industry forges ahead with cloud computing.

After Microsoft I knew I wanted to be involved in something smaller, more nimble, and with a strong focus on innovation. By natural association that vision was always going to lead me to an IT business with cloud computing at the centre of its business model.

So why the cloud?

While an overused term in an industry that loves its buzz words – and if you look beyond the hype – the economics and value proposition that the cloud offers businesses of all sizes is simply irresistible and represents perhaps the most significant shift in the industry since the introduction of the PC back in the early 1980’s. IDC recently predicted that growth in IT cloud services over the next 5 years will outstrip that of traditional IT products to the ratio of 5 to 1. We are also seeing governments around the globe, particularly in Australia, promoting cloud and broadband services as a platform for future economic development. Coinciding with a softening of attitudes and concerns in the market around security, performance, availability, integration etc, there is the perfect setting to drive a monumental shift toward IT services delivered via the cloud. I could say much on this and I’ll certainly delve into what’s driving industry momentum in future blogs, but suffice to say I am a big believer and want to be part of what I see as a revolution in our industry.

First impressions of Xero

I was first introduced to Xero by a Microsoft business partner and friend (James) who had just set up a start-up company with the aim of having the entire IT infrastructure in the cloud. Everything was in scope, from collaboration to CRM, and importantly the accounting system. James’s goal was to avoid the normal trappings of building a costly on-premise solution, which he had done a number of times before, and instead set out to provision a rich, simple, and integrated solution in the cloud. With surprising ease he was able to do this and notably at a fraction of the cost of what he had experienced in the past with on-premise solutions.

Over our breakfast meeting in a cosy Melbourne cafe he demonstrated Xero to me from his laptop. Now I must say at that time, in my capacity running the Dynamics business for Microsoft, most of my exposure had been with lengthy roll outs of some large and complex ERP solutions to some equally large corporate clients with complicated needs. The market for these systems will be around for many years, but what I saw in Xero was an amazingly simple platform that would appeal to an enormous number of small business owners, many of whom have not yet embarked on any form of accounting automation and are just primed to capitalise on all the great benefits that my friend James experienced.

The rest is history

As fate would have it the opportunity to join the team at Xero arose just a few months later. Delving deeper into what the company was all about I was further impressed with the richness of its accounting solution; the strong company culture around customer service and innovation; and an impressive investor backing. It’s because of this combination I believe the company will do exceptionally well in this hugely untapped market.

So in the same way that Microsoft’s traditional boxed software business model has been challenged to its very core from various online providers such as Google and Salesforce.com, I see the disruptive model that Xero has built challenging the old way of doing small business accounting by players such as MYOB and Quicken. I still have much to learn in this role but I am buoyed by my belief that the cloud will be an incredible shift for the industry. I’ll share more insight soon.

Rob comments that the top firms are moving from “trusted advisor to trusted partner”. This is a subtle but significant shift and one I certainly applaud, especially in a time of economic uncertainty. Rob runs the coachingclub for accounting firms and the majority of the results involve those firms. In the coachingclub, Rob suggests five KPIs are mandatory to manage the success of a firm. These are: productivity, average hourly rate recovered, write ons, WIP days and debtor days. This is sensible stuff and after reviewing of  the results I am pleased to note that accountants in Australasia are doing a good job with their firms. But there’s still room for  improvement.

The number accountants will be most interested in is EBIT per director before directors salaries. The average was A$304,929, with the upper quartile reaching A$402,722.  This is good, but could be better. The best performing result was a stunning A$1.7m.

Common traits for the better firms are:

• Higher productivity % for fee earners – average being 71% and the upper quartile 81%. If you can reduce the admin time for your fee earners, what they recover will be better. Makes sense really. That’s why Rob advocates the use of lower cost admin assistants.
• Lower productivity % for directors - this means the less billable work a director does the more successful a firm is.
• Large number of team members per director - with the average being 5 and the upper quartile  7.  Leverage is always important. The best performing firm in the survey had a staggering 20 team members per director.
• Average hourly rate recovered is better - A$156 on average and A$176 for the upper quartile. I’m sure this has something to do with hourly rates, but also efficiency. I’ve seen some firms recovering A$200+ per hour on core compliance work by using efficient technology and processes.
• Net Profit % – for the average was 37%, but the upper quartile 47%. It seems that aside from labour, accountants still have a fairly low cost of operating. It would be interesting to know how much firms are spending on growth, including marketing, sales, adwords, websites etc. In my view the better performing firms invest in growth. They spend money on client retention and acquisition. They also have acquisition targets and make sales results a key part of the monthly board meeting.

You can read the full 2010 Accountants Benchmark Report here. Well done Rob, these results are useful for any accounting firm that wants to do better.

We had a lot of fun. The crowd loved hearing from Rod about Xero’s vision and I know many of you were thrilled to meet Xero director and MYOB co-founder Craig Winkler. Nice too for you and the Xero team to put a name to a face.

It was great to see such a wide range of Xero accounting and network partners and from so far a field  - IT consultant Gillian Rossouw from Brisbane and Unleashed were visiting from Auckland. We also enjoyed the company of ANZ (our marketing partner) and most importantly customers who use and love the software.

Thanks for all the support. Whatever the weather we know Xero is out to grow and prosper in Oz.

As the take-up of Xero ramps up in Australia we’ve been feeling the need to establish a base. Melbourne was an obvious choice because it’s the home of our marketing partner ANZ and carrier partner Telstra. The city’s also got a great culture too which makes it easier to do business.

The move has been noted by the Victorian Government as it rolls out its ICT Plan of Action. This includes a push to position the state as a leader in cloud computing.

While we’ve got people on the ground and covering every state, there’s nothing like building team spirit when you can come together under one roof. Table tennis, pool anyone?

While the recession has certainly been felt, some states have faired very well, especially Western Australia and Queensland, principally due to the huge contracts the mining companies have with China – spanning the next 20 years and worth hundreds of billions of dollars. This is the key export industry that will provide sustainable economic growth for Australia in the next decade. Banks in Australia have faired better than their counterparts in the US and UK, with the ANZ recently announcing a $A5 billion profit. So it’s still fairly rosy in Oz. While I was in Australia the Aussie dollar reached equal value with the Greenback and since then it’s overtaken it. Wow! Not so good for Australian exporters though.

But Australia is very compliance heavy and the income tax and GST provisions are complicated. There still appear to be efficiency gains to be made by government and big business. While the rest of the world is forced to invest in innovation and R&D to build efficiency, Australia still feels fat. The big opportunity for Australia is to use its strong economy and balance sheet to invest in innovation. If it can do that it will become a very rich and powerful influencer in the global economy.

I visited Brisbane, Gold Coast, Perth, Adelaide, Melbourne and Sydney. The accountants we met are upbeat and realise the cloud is going to be the single biggest efficiency and innovation change in their business in decades. They love bank feeds, our information centric dashboards and the Single Ledger concept. They want collaboration, control, visibility and efficiency, which is what Xero delivers. Australian SMEs use accrual accounting and have to keep accurate systems due to the complex nature of GST and income tax. This actually makes it easier to suggest Xero to them. They also understand the difference daily bank feeds make to their ability to monitor the accrual impacts on daily cashflow.

When we did our first roadshows in Australia, just over a year ago, we were getting 15-20 accountants in the room. On this trip it was more like 70-80. Our presentation included a fantastic video interview with MYOB co-founder and now Xero director Craig Winkler and it was great to hear from the ANZ’s Simon Troon on how the ANZ Xero partnership is working.  This, coupled with our visibility through Telstra, and our public company status, is helping to position Xero as the leader in the online accounting space.

I like Australia. The opportunity is big and the country very entrepreneurial. I’m looking forward to the 2011 roadshow already.

This project is well advanced and testing has begun. Assuming we don’t encounter any major issues, we’re looking to make these automated daily bank feeds available for Westpac customers in Australia on Monday September 27.

This is very exciting, as with Westpac feeds live, Xero will have direct bank feeds with all four of the big Australian banks. Our upcoming integration with Yodlee will then extend bank feed coverage to most of the other Australian banks – we’ll have an update on the Yodlee project in the next day or so.

Once the Westpac feeds are released, customers who are keen to receive them (and yes we know there are a few of you!) will need to complete a Westpac Customer Authority Form to register your account(s) for automated feeds. A link to Help Centre will appear in the header of your Westpac bank account on Xero, which directs you to the form and instructions on how to complete this.

Late last year we partnered with TechSoup to provide Xero at a discount to the nonprofit sector in New Zealand and we’re now pleased to announce that this arrangement has been extended to Australia through the DonorTec program. This is provided by Connecting Up Australia, the local partner of US based TechSoup Global, which is a worldwide network of individuals and organisations that believe technology is a powerful enabler for social change.

Connecting Up Australia manages the technology donation program from companies such as Microsoft and Cisco for the benefit of qualified nonprofit organisations around Australia. Xero is now part of the line up of leading technology products and resources being offered to the nonprofit and charity sector.

In Australia the nonprofit and charity sector includes in excess of 700,000 organisations. Connecting Up CEO Doug Jacquier says over the past three years, the DonorTec program has saved Australian charities and nonprofits more than $80 million on their IT costs.

“We are constantly being asked about adding quality accounting products to the offerings available via DonorTec.  So, after pioneering our relationship with Xero via TechSoup New Zealand, we are delighted to now be able to offer uniquely discounted Xero online accounting services in Australia via the DonorTec program. With a rapidly growing customer base in small business, we recommend Australian nonprofits take a serious look at Xero when next assessing their accounting needs.”

Eligible organisations registered with DonorTec just need to login to DonorTec and click the Xero sign-up link to get a 25% discount on their first organisation subscription.

Webrecs, the latest addition to the Xero Network, offers a solution for those who need to process high volumes of invoices for their clients. This eliminates the dreaded shoe-box and gives you real-time access to electronic copies of the client data. All your clients have to do is scan their documents and receipts to the Webrecs Document Management System for storage.

Webrecs makes it possible for you to view the receipts and documents in Excel and create invoices, which at the press of a button, are uploaded to Xero. Data entry is much easier because Webrecs copies the Xero Chart of Accounts, contacts and tax codes to Excel so you can accurately code the invoices. Too easy!

Watch this overview:

Here’s a check list of things you can do to manage the business side of the end of year in Xero. These should help you spread the load, saving time, money and angst!1. Invite your Accountant
If you haven’t already, invite your accountant into your Xero organisation so they can see your accounts in real time.

2. Enter Accounts Receivable invoices
Complete your invoicing for the month. If you have open credit notes follow up with your customers so these can be applied to invoices or refunded. Generate invoices and statements as needed – sending them off to your customers.

For your Aged Receivables (Reports>Aged Receivables, date as at 30 June), identify overdue invoices you don’t think you are going to get paid for (maybe the company has gone of out business or there is a dispute) and send the details to your accountant. For those that aren’t doubtful, start (or continue) your collection process.

3. Enter Accounts Payable invoices
Check that all Accounts Payable Invoices have been entered, check on the status of any credit notes and take them up as needed. Pay any outstanding invoices as required.

4. Enter and finalise expense claims
Make sure all expense claims for the year have been entered and processed, approving, paying or declining and voiding as required.

5. Finalise payroll
If you have employees, complete the payrolls to be paid in June. Remember that any payroll that will be paid in July (irrespective of the pay period) doesn’t relate to this financial year end.

If you are using the payroll solution of one of our Xero Network Partners, the payroll transactions will come through to Xero as Accounts Payable invoices, so be sure to approve them as you normally would.

There are some very important dates (14 July, 28 July and 14 August) for Payroll end of year and we’d recommend you discuss these with whoever manages your payroll.

6. Stock-take
If you hold stock, complete a stock take and valuation for all stock on hand at the end of the month and be sure that you’ve shipped any stock for invoices in June.

7. Assets, shares, dividends
Has your organisation purchased or sold any assets this year, such as cars, computer equipment or shares? Have you received any dividends? If so gather the paperwork and send it your accountant.

8. Reconcile bank accounts
Check that each of your bank accounts is up-to-date and has been reconciled. Have a look at the dashboard to see that your last reconciled date is in line with the last bank statement date and whether the Reconcile Now button is visible, if it is, you have transactions to reconcile. If you have bank feeds this is much easier for you to manage because they come in daily, but if you download bank statements check that you have the last one for the financial year from your bank and you’ve reconciled transactions up to 30 June.

For more information have a look at  the Year-End topic in our Help Centre.