The problem?

Too often, we start working with businesses that have tried to run their finance function themselves. They’ve done a reasonable job considering how complicated accounting can be; after all we study for years to become qualified accountants and longer to be able to practice! However, we always see errors to some degree and nature, but one of the main frustrations is how those errors have somehow cost the business. Rather than saving the business money, which is the intention, it actually costs the business more in the long-run.

Whether that’s lost investment due to a lack of investor confidence because their finance system is a mess and a lack of clarity on historic numbers or the cost to fix what’s in there in the first place.

Above all, the information is just not robust enough and the business doesn’t have good enough information to make informed business decisions.

The start-up challenge

MVP & productfocus

Cash burn Businessgrowth

Investor focus Decision & due dilligence friendly

Forecasting

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The flinder Effect™ is our way of transforming the outdated finance model to a world-class data-driven finance function.

At the heart of every organisation is the vision. This is the same for the finance function – wrapped around this finance vision supporting the wider business are the strategic objectives of finance. In other words, how finance will achieve the vision. In order to achieve this vision, there are competing demands from finance across the areas of efficiency, control and insight. If a finance function is too well controlled, it’s at the expense of being efficient. If a finance function lacks efficiency, it’s often at the expense of creating insight.

Finance functions should focus on reducing the proportion of time they spend on preparation to free up this time to spend on interpretation and value adding activities. We call these value drivers.

© Copyright flinder 2019. All rights reserved.

Supporting these value drivers are the enabling foundations. The foundations of a finance function are people, processes, technology and data.

Each of these enabling foundations has a direct impact on how well controlled, how efficient and how much insight a finance function delivers.

Together our enabling foundations, value drivers with vision & strategic objectives at the core form our 9 Pillars of Finance Function Excellence™.

The flinder Effect™ is the way we support fast-growth businesses and free them to focus on what they do best; running their business. We not only run the entire finance function, develop an appropriate infrastructure which will stand them in good stead for growth but also partner with the business to drive better business decisions and help secure them the investment they need.

We see a lot of mistakes that founders and other accounting firms make using Xero in the early days and so this report focuses on 10 simple ways to get more from Xero and avoid some early pitfalls!

Our solution: The flinder Effect™

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Introduction

We’ve compiled some of the most common missed opportunities we see when working with start-ups. While Xero has gamified a very small part of the accounting experience, accounting skills are so wide-ranging, this and other advances in technology are only enabling a more productive use of an accountant’s higher value skillset.

Here are the key themes of missed opportunities we pick up and correct:

EfficiencyXero has been designed to increase efficiency around the data capture (bookkeeping) process; from leveraging the right apps on the Xero marketplace to simply leveraging unknown functionality within Xero we see huge areas of inefficiency from founders when they’re bootstrapping.

ControlWhile efficiency is a nice to have, control is a must have; it’s a basic, and it’s one that very much puts investors off. For a finance novice, it’s pretty easy to get out of control and not understand what’s behind the gamification of a bank reconciliation, how or when it goes wrong or posting in different periods after you’ve reported on them.

InsightThis is the holy grail for anyone wanting to make sound business decisions and seeking investment. Not to mention cashflow and cash burn.

Best of luck improving your Xero understanding, or what I actually mean...growing your business with the right tools!

Alastair Barlow FCCAFounder and Chief Dreamer, flinder

About Alastair

Alastair is founder and Chief Dreamer at flinder. flinder is an accounting, consulting and data analytics business providing rich real-time management information for growing businesses.

As well as his work with fast-growth businesses and transforming finance functions, he writes for AccountingWeb in a monthly column, sits on the ACCA Practitioner’s Panel Network, has been shortlisted as Business Person of the Year in 2019 and recognised for his work driving the profession to a better place and acting as a catalyst for change by winning ACCA UK Advocate of the Year 2019.

His experience and expertise includes: Business strategy, finance operating model and optimisation, complex businesses, modelling, management information, business-wide performance management, business plans and working with start-ups and SMEs at the Board level. Alastair acts as CFO on a select few of flinder portfolio clients and coaches & mentors CFOs in mid-sized organisations.

He spent 16 years at PwC in various roles across Consulting, Assurance and latterly led PwC My Financepartner in London & South East working with growing businesses.

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flinder is the smartest, most strategic and most practical team in town.

Joel Freeman, founder, Heights

“

Recent accolades

Innovative Firm of the Year 2019

New Firm of the Year 2019 Fast-Track Firm of the Year 2019

Stevie International Business Award 2018

Best Use of TechnologyFirm of the Year 2018

Independent Firm of the Year 2019

SME Best New Business Shortlisted 2019

Business Culture Awards Finalist 2019

British Accounting Marketing Awards Winner 2019

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1. Cash coding2. Bank rules3. Use the API4. Leverage the app marketplace5. Locking the accounting period6. Check the bank statement agrees to the bank balance7. Tracking categories8. Cash burn9. Chart of Accounts10. Founder-friendly reporting

Contents

A picture is worth a

thousands words.

I’ve been so impressed with the dedication, workrate, and overall commitment of the team and cannot recommend them highly enough – keep being awesome!”

Euan Blair, founder, WhiteHat

“

EfficiencySimplifying and standardising processes

1. Cash coding

What is it?You can quickly review and reconcile all bank rules using the cash coding screen.

Why it matters?Xero has gamified the bank reconciliation experience and made it relatively easy and efficient for a non-accountant to perform this. You can up the efficiency even more, especially if you’re reconciling a lot of transactions at once by using the cash coding functionality.

We recommendAdd in this activity as part of your regular Xero review to reconcile your bank and see how much time you save.

You can access the cash coding screen through:

Reconcile > Cash coding

2. Bank rules

What is it?Bank rules is functionality that helps reconcile frequently recurring bank statement lines where no transaction have been created. Bank rules suggests new transactions, so you don’t have to create a transaction manually. Examples would include Uber, TFL, DropBox and other SaaS costs.

Why it matters?Our experience shows that a good proportion of spend transactions relate to payments that are with the same suppliers but no invoice is received and there is no VAT on them. Without an invoice, a transaction is not created in Xero and thus each receipt or payment needs to be individually allocated to an account. Creating or editing bank rules for regular payments enables Xero to automatically route these to an account.

Bank rules won’t suggest reconciling a statement line against a transaction already created in Xero, such as an invoice, bill, or expense claim, but you can match it manually.

Efficiency

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Show me

We recommendTry to create your first bank rule from the bank rules screen, during bank reconciliation, or while you’re cash coding.

You can access bank rules through:

Accounting > Bank Accounts > Manage Account > Bank Rules

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Other accountants will become very outdated, very quickly because they just lack relevance.

Alastair Barlow, founder & Chief Dreamer, flinder

“

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3. Use the API

What is it?As most technology-enabled start-ups know, API or application programming interface is a communication protocol which simplifies integrations. Xero has a pretty good open API along with detailed documentation.

Why it matters?A connected best-of-breed environment is good practice and removes the inherent risk of human error in processing. If you’re developing your own proprietary software or web application, pointing revenue into Xero can increase processing efficiency and accuracy.

We recommendWe would suggest speaking to an accountant on what and how to best map this but the accounting API documentation is readily available to make a start.

You can access the accounting API documentation here.

4. Leverage the app marketplace

What is it?The Xero app marketplace is an emporium of third-party software that integrates with Xero to improve business efficiency. There are currently over 700 apps on the Xero marketplace to choose from.

Why it matters?The Xero apps connect applications and offer native integrations to increase efficiency between other business functions and finance. Regardless of the sector or industry you are in, or even the proprietary software you are developing, there will be a Xero app that will improve efficiency and accuracy among your processes.

We recommendWhile there are specific apps that work better for certain sectors or industries, our favourite generic ones include:

• ReceiptBank – receipt processing• ApprovalMax – PO approval workflow• Telleroo – bank payments made simple• Chaser – automate B2B invoice chasing• Expensify – expense management• flinder – rich, real-time analytics

• Soldo – controlled company card spending• GoCardless – direct debit• Stripe – online payment processing• WorkflowMax – project management• FloatApp – short-term cashflow forecasting• Xavier - data cleansing

You can access the Xero app marketplace here.

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SMEs should be a masterof one thing; everythingelse that’s non-core theyshould pass out to a thirdparty expert to delivermuch better.

Alastair Barlow, CEO and Chief Dreamer at flinder.

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flinder founders; Alastair Barlow (right) and Luke Streeter (left)

Interactive cash management dashboardIf you would like to see an example of our one of our cash management dashboards integrated with Xero data feeds, click the button below.

Click for interactive dashboard

Interactive financial analysis dashboardIf you would like to see an example of our one of our financial analysis dashboards integrated with Xero data feeds, click the button below.

Click for interactive dashboard

ControlMaintaining an appropriate level ofgovernance

5. Locking the accounting period

What is it?Lock dates is a function within Xero which enables you to stop data from being changed in a specific period.

Why it matters?Lock dates are typically used to prevent data editing. Not locking the previous month once a period is closed and reported on means transations can be posted into previous periods which means, at worst, historic reporting is no longer accurate and, at best, it takes time investigating discrepancies and correcting them.

We recommendAssign responsibility and schedule a task to review the lock dates each reporting period and apply them.

You can access lock dates through:

Accounting > Advanced > Advanced settings > Financial settings

Control

6. Check the bank statement agrees to the bank balance

What is it?Xero shows the balance based on transactions imported into Xero (and also using bank feeds), whereas the bank balance shows all transactions. These may not always agree after being fully reconciled.

Why it matters?There can be occasional ‘blips’ in bank feeds which mean some transactions can be missing as they aren’t always brought in automatically. This can cause huge confusion and without recognising this issue, understate spend and make decisions on the back of incorrect information.

We recommendRegularly check that the balance in Xero agrees to the bank statement balance using the reconciliation report.

This will show any items that are unreconciled in Xero that may not be included within the bank account.

You can see this on any one of your bank accounts:

Accounting > Reports > Accounting > Reconciliation report > ‘select bank account’

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InsightBusiness partnering to drive better business-wide decision making

7. Tracking categories

What is it?Tracking categories is functionality within Xero which enables you to track up to two independent categories for departmental analysis.

Why it matters?Aggregated information can easily masquerade the real story. An underperforming business unit or sales channel can easily be hidden whenaggregated in with a high-performing one. Without segmenting your management information to the right level, such insights are difficult to identify, resulting in action not taken and a potential important intervention not made.

Most investors (and business owners) should want to segment their information to at least these two levels that Xero facilitates.

We often see this isn’t done at all but when it is, it’s typically at the end of the process e.g. each month or quarter-end, and it’s a slow and time-intensive exercise rather than capturing the data using the tracking categories in the first place, which would both improve efficiency and control around this.

Why it matters (continued)This can really be the difference in understanding business performance, making better decisions and exciting investors about your business. This can facilitate understanding gross margin by category or even a whole Profit and Loss.

It also reduces the length of the chart of accounts and makes it easier to report on.

We recommendEvaluate the two most important ways to split the business up and build it into Xero’s tracking categories. The most common ways to use tracking categories are:

• Business unit• Cost centres• Revenue channel• Customer type• Sales agent• Geography

You can access tracking categories through:

Accounting > Advanced > Advanced settings > Tracking categories

95% of investors*either agreed or strongly

agreed that clearevidence of good

financial management was key to their

decision-makingprocess.

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Insight

*Source: BlackLine 2019 report - The New Age of Increased Due Diligence surveyed 763 institutional investors across six markets.

“ Data is the new oil.

Clive Humby, UK mathematicianand architect of Tesco’s Clubcard

8. Cash burn

What is it?As a recap, cash burn is the rate at which a company uses up its cash to run its day-to-day operations typically measured monthly. Average cash burn can also be used to calculate how much runway a company has left (number of months) until it reaches cash zero date (has no money left).

There are two types of burn rates; gross burn and net burn. Gross burn is the total amount spent each month. Whereas net burn is the total cash spent less cash inflow attributable to revenues.

Why it matters?Most founders understand the concept of cash burn and runway, but keeping these metrics in check is arguably one of the most important things for any start-up. As founders are extremely busy focusing on developing a product or growing a business, making this as easy as possible to follow is extremely important.

We recommendOur cash management dashboard shows all things cash in an easy to use visual dashboard.

Insight (continued)

You can easily see gross and net cash burn over the past 6 months, along with daily cash inflows and outflows among other useful cash-focused metrics.

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58% of investors*are increasingly worried

by a lack of transparency in their portfolio

companies’ financial statements.

Source: BlackLine 2019 report - The New Age of Increased Due Diligence surveyed 763 institutional investors across six markets.

9. Chart of Accounts

What is it?The Chart of Accounts (CoA) is accounting terminology which relates to a list of accounts in Xero that’s used to track income, expenses, assets, liabilities and equity. There are account names and numbers that are grouped in various hierarchies. Essentially, it’s a structure of data fields.

Why it matters?It’s so important to think about your Chart of Accounts before defaulting to the standard one. This is one of the biggest mistakes we see in start-ups (and from other accountants).

Our view is that the standard Xero Chart of Accounts is only relevant to very basic businesses and it’s certainly not appropriate for a business that’s ultimately seeking investment and should be tracking with greater granularity and a need to report with deeper insight.

We’ve seen it many times where start-ups are manipulating data outputs to reclassify revenues and costs to make the report more in-line with what investors expect to see in their industry. Capturing the data in the correct format upfront will absolutely make the output more relevant and

reporting much more efficient.

We recommendDevelop your own Chart of Accounts that’s tailored to your business and even your sector. Plan this outside of the Xero environment so you can move the structure around freely without editing new codes as you will likely want to review it a number of times before it’s the perfect (or near perfect) version.

You can access the Chart of Accounts through:

Accounting > Advanced > Chart of Accounts

“The discussion we now have in the Board around financial matters are much better informed.”

Ed Simpson, Founder and Director, The Legal Director

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Insight (continued)

We love working with flinder. Their commitment to our business and understanding of it coupled with their enthusiastic and helpful approach is wonderful!

Mark Henderson, founder and Director, The New Craftsmen

“

10. Founder-friendly reporting

What is it?Make it easy to make decisions. Founders or entrepreneurs generally don’t enjoy looking at black and white numbers, row after row. Founder-friendly reporting is all about bringing the numbers to life through images and charts that help tell the story.

Why it matters?Who wants to look at just numbers? The entrepreneurial mindset tends not to deal well with numbers. Bringing numbers to life through visualisation is important to convey the message and meaning of the data. If you want a message to be heard, a picture is worth a thousand words!

We recommendHere we recommend our own application, flinder analytics. It’s been developed to sit on top of Xero and extract data real-time to make it a much more engaging experience. It has metrics such as segmented reporting and cash burn embedded into it making it perfect for start-ups and growing businesses.

Interested in our standard dashboards? Click here.

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Insight (continued)

Get them today

A picture is worth a

thousands words.

Get more out of Xero; become more efficient, better controlled and deliver more insightDo you need help implementing any of the tips these tips?

Book your free discovery call with us to see what we can do to help you.

Book a call

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DisclaimerThis publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, flinder (flinder holdings limited and subsidiaries), employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2019 flinder. All rights reserved. In this document, “flinder” refers to flinder holdings limited and subsidiaries.Please see www.flinder.co/legal for further details.

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