5 mistakes you're making in Xero

As Xero certified advisors we love the software. However, from our experience, we’ve found 5 of the most common mistakes business owners make in their Xero account. This can delay them from making the best decisions for their business.  We want to help you avoid these mistakes so read on to find out more and if you need any help with these, drop us an email at: katie@bluearrowaccounting.com

1) Not connecting all of your business bank and credit card accounts to Xero

One of the best time saving tips in Xero is linking your bank account feed to your Xero account, it saves hours each month on your bookkeeping and helps you keep on top of your bank transactions.  

By linking the two, this ensures you don't miss any transactions and helps you keep track of your paperwork.  

But make sure you have a clear separation between your business and personal accounts and keep the bank connected to Xero by signing into your bank every 90 days.

2) Not deciding on how you are going to manage receipts

The next mistake we see business owners do is not deciding how they are going to organise and manage receipts. When you don’t have a clear process, it is easy to get to the end of the year, and you wind up doing a mass clean-up when you’re just hoping that you aren’t missing any of your receipts or that they haven’t been lost during the year. 

Instead, we recommend using a receipt management app, like Hubdoc. You can claim your free Hubdoc account when you get a Xero subscription and it is included in all of our Blue Arrow accounting packages.  It has an auto-fetch feature where it can also extract data directly from the source. For example, if your electricity provider was listed as one of Hubdoc’s suppliers, then you could actually set up Hubdoc so that it would fetch the invoice directly from your provider - isn’t that smart!

3) Not reconciling the bank account in Xero to bank statements

The best way to check this is to run a reconciliation report in Xero. By running a reconciliation report and then comparing it to your bank statements, this allows you to ensure that your financial records are accurate.

In my experience, this step is missed a lot more often than it’s completed, which means business owners are looking at incomplete data when they’re looking at their reports.

4) Not using bank rules

Bank rules are your secret weapon in using Xero and if you spend the time to set them

up properly this will save you time and increase your accuracy when doing your bookkeeping by setting up the correct VAT line and chart of accounts code.

To create a simple bank rule while you're reconciling your bank account, select the bank statement line you want to create a bank rule for:

• Click Options, 

• Select Create bank rule. 

• Enter the conditions to build the rule, 

• Click Save 

• Click OK to apply the rule to the statement line.

The most common transactions to use a bank rule for is pension payments, wages, insurance payments, bank charges and fees and transfers between bank accounts. If you have any bank rules for your bank accounts, let us know, we would love to hear about them! 

5) Mishandling transactions when you are paying yourself

The final mistake that we see is around business owners not knowing how to handle transactions where they’re paying themselves, or they’ve paid for business expenses on a personal card.

When it comes to paying yourself, this will vary depending on your business structure and also the way that you’re paying yourself (i.e. payroll wages, director’s fees, distributions, or dividends). Depending on which of those categories it is, it will go to a different account in Xero or be treated in a slightly different way.

The second component is around what to do if you paid for something on the wrong card. For example, you didn’t have your business credit card on you and paid for a team lunch on your personal card. There are ways to capture this in Xero so that you can still claim the tax deduction.

Implementing the above tips will make it easier to make informed business decisions as well as avoid any extra hassles at tax time. We love making processes easier and guiding business owners to make the correct decisions. If you would like to find out more email us at katie@bluearrowaccounting.co.uk and we would love to help you get started.