After spending the last three years becoming a credible option for smaller businesses, it is now time for larger businesses to evaluate moving their supply chain & finance systems to the cloud. Cloud software gives mid-sized and larger SMEs a chance to apply near-enterprise software at a fraction of the deployment and ownership costs of even five years ago. For data-driven businesses, these are exciting times. At GrowthPath, helping clients choose better systems is a means to an end, and that end is profitable growth. This may mean integrating a system like Xero with supply chain software (e.g. Unleashed), or to cloud-based business intelligence tools.
Smaller businesses have already come to this conclusion. At GrowthPath, we get a lot of calls from businesses to move to cloud accounting. Here's a huge sign of the change going on: it's usually the business owner calling, not the bookkeeper or accountant.
GrowthPath provides independent, vendor-neutral advice to its clients, where independent means in the best interests of clients, with no commissions or relationships to third parties. We provide tailored, independent advice on IT solutions designed to improve profit for small and medium-sized Australian businesses in retail, wholesale, hospitality, manufacturing, professional and medical services.
Tim Richardson is a Director of GrowthPath. He is an Australian CPA holding a Masters of Accountancy and degrees in Computer Science and Linguistics, with CFO & Finance Director experience with large SMEs and multinationals. He had senior IT and Finance roles in Indonesia, Asia Pacific and Western & Central Europe. Prior to moving into finance, he was an ERP and business analytics developer, consultant and project manager. His commercial experience covers automotive, lighting, repetitive manufacturing, retail, wholesale, high-volume online commerce and medical services.
Why is SME business IT moving to the cloud?
The future of business IT is in the cloud. It's cheaper, simpler yet more insightful and more productive. The cloud revolution is propelled by fast, reliable internet; cheap servers and widely-used open-standards for interchanging data and instructions between software.
Small businesses can use cloud software to avoid owning and babysitting a Windows server (backups, updates, power failures ...). They can disperse their workforce more easily, and use contract staff and remote staff for back-office functions. So the cost saving and flexibility advantages extend further than it seems at first glance.
Security concerns are common. Read GrowthPath's introduction and advice about cloud security for SMEs
It also means that service relationships with bookkeepers and financial advisors can move away from a transaction view (pay-per-hour) and backwards-looking data (bank reconciliations done every month at best) to a more more up-to-date basis with a focus on decisions and information, not reporting. The IT playing field is levelled: previously only larger companies could afford the IT needed to become a data-driven business.
For larger businesses, these cloud advantages exist as well. Additionally, there are potentially large cost savings when moving away from traditional ERP software, which is expensive to implement, to customise, to integrate and to own. Staff training costs tend to be much lower with cloud software, which uses simpler user-interfaces everyone is familiar with.
Above all, more complex businesses can use the Open API revolution to integrate IT like never before. Lower costs are not the real potential of cloud-computing. APIs are the most revolutionary aspect of cloud computing, because they offer the prospect of integrating the IT used in all aspects of a modern business, including online sales, CRM and marketing automation.
It was always possible to build interfaces between a bank feed, an online store, a pick-and-pack logistics provider and a traditional ERP system. But it's very expensive, and the skills are hard to find since each package has a proprietary way of working, implemented on a narrow set of technology options. With cloud software backed by Open APIs, integration is basically trivial, and it is supported on a wide array of technologies and programming languages.
Economists would call this "integration cost" a type of "transaction cost". Traditional ERP with high "integration costs" solves this problem by offering more and more functionality under the one roof, therefore avoiding integrations. It comes at the cost of complicated implementations and slow replacement cycles, perhaps every five to ten years, and it can only offer a "Jack of all trades, master of none" solution which has not kept pace with innovations in online and multi-channel commerce, CRM, customer service, marketing automation and analytics.
What about hosted and hybrid solutions?
You may hear terms like "hosted" and "hybrid" as a type of cloud solution. A hosted solution means that the software still runs on a server, nearly always (in this case) a Windows server, and you access the server remotely (from many different "clients": a PC, a Mac, an iPad or a Chromebook: they all have good Microsoft Remote Desktop software) although touch and mobile devices don't run desktop software very well.
It may be your server, and you pay per month to rent this server. Or it may be a server belonging to a software vendor; it offers access to many clients, you being one of them. For vendors, this means they can offer some cloud benefits without changing their software much: the server doing the hosting runs Windows, the same environment that it runs on locally.
Hosting gives you remote access, a simpler life, and exactly the same software with no learning curve. It requires a good, fast internet connection, particularly for multiple users. The main disadvantage is that you still using and paying for pre-cloud software with no "cloud-skills": a hosting solution doesn't help legacy software connect to other software in the cloud: it just means your server is somewhere else. I would almost always prefer a hosted solution to running your own server, but you should still evaluate the possibilities of genuine cloud software.
In the context of SME accounting, "hybrid" mainly refers to MYOB's AccountRight Live product. Here, hybrid means you have the option of keeping the data file in MYOB's cloud servers, or using it locally (but not both at the same time). Since this solution means you still need a Windows desktop running MYOB's software, it is even further from the real cloud than a hosted solution. However, the data in the cloud is accessible via an API, which moves it closer to genuine cloud solution (although using this product in cloud-mode is optional).
"self-hosted" or "private cloud" means using cloud software, but on a private network. You can more easily control who has access to this private network, so it's possibly more secure. Those advantages are clear if there are many systems in place which need to communicate with each other: common in very large businesses, rare in SMEs.
None of the systems here make self-hosting available.
The Open API revolution of Cloud Computing
The traditional model of business IT is all-under-one-roof monolithic IT systems (the king of this jungle is SAP R/3; MYOB is its little brother by concept). These systems were hard to integrate with other software, requiring specialised skills in proprietary languages and even proprietary databases. Once a business committed to a platform, it was largely locked in. After paying high upfront licence fees, they could look forward to expensive annual maintenance fees. Businesses relied for implementation on consultants who were narrow specialists in a particular proprietary solution (in fact, software specialists were themselves locked in to particular solutions; moving to a new system was a traumatic career change). The period required to amortise the cost of the investment introduces a risk: what if business needs change during that time? Monolithic systems can become straight-jackets.
The monolithic approach risks a "Jack of all trades, master of none" approach. Why did they dominate business software? Before the rise of modern APIs, the cost of wiring together "best of breed " software was so high that monolithic systems ruled the earth. Now, they are an endangered species. Expensive to own, slow to innovate and hard to use, they are on the way out.
The API revolution can be starkly illustrated by the old and new approach to integrating software. A traditional software solution charges very high fees to buy the "developer licence" which only then provides the documentation and software allowing programmers to import and export data. Apart from the licence cost, APIs were poorly standardised and required a lot of love and attention. There was an entire breed of software called "middleware" which sprung up. Putting together systems required much specialised knowledge.
So the API revolution finally makes it possible for small businesses to combine best of breed software, something which not even large companies would attempt ten years ago.
A good example of integration potential for wholesalers is the combination of Xero and Unleashed. Read more about Unleashed and Xero
MYOB Account Right and 3rd party extensions
There are many third-party extensions for traditional MYOB: packages which add features. They are installed locally, next to a MYOB installation.
Today, MYOB has three technical approaches in the market: (a) MYOB "Classic", (b) the hybrid AR Live and (c) the pure-cloud MYOB Essentials. The API is different in each case, so vendors of extensions will have different levels of support across these three options. That is, if you rely on an extension in classic MYOB, don't expect it will be available on the other two platforms. MYOB Classic requires access through a slow and crash-prone ODBC connection which connects locally. AR Live vendors can offer API-based cloud support if you use this product in cloud mode (which even MYOB says is slow). If you use it locally, I guess your extension vendor must also support local installations. Even in local mode, AR Live no longer supports the ODBC connection so classic extensions don't work.
It's a complicated picture which will make things difficult for vendors. MYOB Essentials is a real cloud product and is included as such in this page. It has a different API to AR Live.
When you terminate your cloud subscription?
Migrating accounting system is never much fun. If you cancel your subscription, it is usually to migrate to a new system. In a nutshell, cloud solutions are neither much worse or much easier for this migration. They should be superior because the APIs make it much easier for programmers to access the old data and smoothly move it to the new system, but whether you find a good migration solution for your particular migration is something which needs research.
If you want the view the data read-only, you will be exporting from the old system both final reports and journal transactions saved in text files. There is no reason why you can't use your expired-subscription in read-only mode, but none of the vendors supports this (to my knowledge).
This is clearly inferior to the traditional desktop software which has a perpetual licence: you can always open MYOB and view an old file. It would be nice if the cloud vendors provided permanent read access to terminated subscriptions. It is a common question.
Xero lets you reactivate an old account and pay pro-rata for the days when it is reactivated, and it also lets you export the history of account transactions.
A read-only view of data would assuage a lot of these concerns and we can only hope the vendors meet us on this point.
ProfitEngineering ... make changing systems worthwhile
At GrowthPath, helping clients choose better systems is a means to an end, and that end is profitable growth. When you're ready to start using new insights to grow your business, you may be interested in our Profit Engineering approach.
Some articles worth looking at are:
- Contribution Margin vs Gross Margin, a simple, easy improvement to reporting for more profitable decisions
- Choosing an inventory method: Perpetual or Periodic. The Perpetual method is vastly superior and well worth the extra effort
- Cash vs Profit: the uses and abuses of these two performance measurements
- Measuring your procurement effectiveness with the Purchase Efficiency KPI
Smaller businesses looking simply for a cloud accounting package
Smaller businesses come here looking to find a bookkeeping solution ready to go, and they will compare functionality to the benchmark, which is usually MYOB. Saasu is cheaper and has slightly more functionality. QuickBooks is not too bad, and is currently heavily discounted (but watch out for payroll pricing).
But Xero is still a good choice, as you'll see below. Xero has a better API and it has ready-to-go integration with more software, including some very good supply chain packages.
The real benefits of a cloud package don't really come from being to view your accounts from an iPad on the beach. The real benefits will come when you want to add online stores, CRMs, marketing automation, point of sale, social media and Google Apps. You should give attention to the quality of the API and size of the ecosystem. Xero wins here. My prediction (Q1 2015) is that Xero and QuickBooks Online will come to dominate.
A case study in ERP savings for a larger business
I was approached by a manufacturing business using a legacy ERP system with annual maintenance fees of around $10,000. As well, the software required Windows Server, and an upgrade was necessary since they were on Windows Server 2003.
The owner of this business was interested in Xero but knew it was not a replacement on its own. So he contacted GrowthPath.
I was skeptical. Xero had no inventory functionality, let alone any support for manufacturing.
However, I studied a third party package called Unleashed. This package offered purchasing, ordering, inventory management and simple routing and costing. It was not a one-for-one replacement of the existing software. But it was close, and it avoided a server upgrade, delivered annual savings of around $8000 and allowed the owner to easily stay in touch with the business while travelling. For my consulting fee I provided data migration instructions. The conversion was successful.
A case study in API integration
A traditional POS cafe IT setup would cost around $8000, involving a Windows server, and dedicated POS software. On top of that you then provide an accounting package. There are hidden costs in running a server; the electricity bill is not trivial, but it needs backups and much love and attention.
Or you can subscribe to Xero for the bookkeeping and payroll, Kounta for the POS (running on iPads) and Deputy for staff rostering and timesheets, three cloud systems. There is no server. You still need to buy a cashdrawer and order printers, but there is a lot of change left from $8000, and you can see up to the minute sales data from anywhere.
A simple mashup
Another business is a jewellery wholesaler. When signing up retail outlets, it's helpful for both the wholesaler and the potential stockist to see that there are no other stockists nearby. Using APIs, it is only a couple of hours work to combine Google Maps and Saasu's customer database to have an stockist location map viewable on the sales rep's iPad. Google has a free geo-location API which will take a list of addresses and give you the precise latitude and longitude, so you can easily show stockists with a certain radius of a location.
Accounting systems remain at the heart of business IT
The heart of the traditional business software is accounting functionality. Many visitors to this page are in one of these camps:
- Businesses which are looking to exit MYOB because they have outgrown it
- Businesses which are looking to exit traditional ERP software because they seek an alternative to expensive licence fees
- New businesses looking for a system choice
Based on feedback and questions I get, I feel (anecdotally) that the the second type of business is growing fast. I am therefore reorienting this content.
In all cases, visitors to this site are considering a cloud accounting system at the heart of their IT stack. Of course, by now, many businesses have cloud applications doing important roles: at the very least; websites, online stores, and possibly marketing automation tools like Infusionsoft.
Three years ago, cloud accounting software had limited functionality and a deserved reputation as tools limited to micro-businesses. But since then, the functionality has evolved in interesting ways, particularly to support collaboration and a less PC-centric way of working. The other development has been the rapid growth of the cloud-ecosystem. The promise of building plug-and-play IT by linking together software from different vendors has come to pass.
So where do the Australian cloud-accounting packages stand? How do you choose?
a) the core accounting functionality of cloud packages does not yet rival mature packages in some areas which may be important. However, functionality gaps are likely to be solvable by integrating another package.
b) the ecosystem of connected applications is a key reason to make the move
c) For more complex businesses, Xero must be on the shortlist. Xero has the best ecosystem by far.
d) Business using traditional ERP packages can save a lot of money and dramatically modernise their IT
f) don't forget the productivity advantages of modern IT. No more emailed reports. Lose the clunky integration with Microsoft Outlook. Mobile-phone snapshots of receipts and notes are simply attached. Mobile phones, tablets and Chromebooks are first class devices.
Our own experience
When we started GrowthPath, we had no intention of relying on PC-based software whenever there was an alternative. There were a few candidate solutions for our accounting & billing needs. We spent the first year on MYOB's offering, "Live Accounts", and then moved to Xero, and then to Saasu. Meanwhile I have spent some time with Quickbooks Online, which I am coming to like.
Vendors of cloud software usually deliver new features and improvements quite often, so these packages are moving targets. Comments here are based on functionality at the time of writing.
Pricing changes. At the moment, Saasu has the most flexibility in tiers, is cheaper and I think it is clearly the best value for money. Only Saasu still has a entry-level offer.
Saasu in 2015 has seen some big changes, with the product extending to "Advanced" options which incorporate some big leaps in functionality, including powerful inventory features.
Xero and Saasu have increased prices at the start of 2015, although the point above is still true. These packages base their pricing tiers on the business complexity: how many transactions, how many bank feeds, how many employees. They don't limit by how you use it or how many users you have. QuickBooks, however, has user numbers in its pricing tiers still.
Inventory: Perpetual vs Periodic
Saasu has Perpetual Inventory in all plans. Quickbooks Online offers it in the "Plus" plan. In March 2015, Xero added perpetual inventory (a basic module; no API yet so it is not used by any third party apps). Quickbooks offers perpetual as well, but only in the highest plan. Perpetual is much better, if you have stock.
The inventory modules of Saasu, Xero and QuickBooks are basic: they don't allow backorders, for example.
So you may need to integrate with an advanced package. GrowthPath follows three such systems (Stitch, Unleashed and TradeGecko) and we are able to advise on an integrated solution for more sophisticated supply chain requirements.
Learn more about choosing an inventory approach: You need to use Perpetual to understand what's going on in your business if you move stock.
Saasu has the most sophisticated inventory features in its Large plan. In this plan, you get customised attributes associated with items, which are then used on sales orders and purchase orders. Saasu defaults one of these attributes to location, for example. They can also cope with variants, such as size, color or style. This feature is not very usable at present because the interface is clumsy and I hesitate to recommend it, but the necessary user-interface improvements are on the way.
Payroll is a complicated part of business. While these systems support payroll, it is basic and requires the use of skilled personnel. Payroll is an area where a small business should use a qualified bookkeeper, even if they have software that offers "payroll". Businesses with complex payroll should still consider outsourcing it or using dedicated software. Even clients with "big" ERP systems go down this path.
A note about QuickBooks Online: It is now delivered to the Australian market by its US parent, after many years of localisation by Reckon, an Australian business. Quickbooks Online uses a third-party payroll provider. The pricing tiers don't include many employees, and the prices rises fast. Also, the pricing agreement from QuickBooks says it can't guarantee what the payroll pricing will be in future. Xero and Saasu own their own payroll modules, and are much better value for money for businesses with more than around 20 employees.
I am still looking for a good intercompany solution with cloud packages... this means an extension that automatically keeps inter-company accounts balanced. None of the packages here offer that, including the traditional versions. This is almost the last frontier of the cloud-based accounting packages for privately-owned SME needs. MYOB doesn't offer it either.
Saasu's Large plan at least offers a "consolidated P&L", which can combine the P&Ls of separate companies under the same subscription. I haven't used this. There are plenty of Excel solutions that are fairly easy to adapt to Xero, and no doubt there are plug-ins as well.
The real win for multi-entity businesses is automatic balancing entries for multi-entity entries (e.g. booking a rent expense into an administrative entity, and have it automatically split the expense to other entities, all the while creating balancing intercompany loan accounts). None of these packages offer that and I'm not aware of any third party solutions. Xero's API is good enough for this to be coded. Perhaps a project for me on a rainy weekend.
The best solution in this case is to run multiple files and use a consolidation reporting tool. There are some options: there are third party apps which do this for Xero, and the advisor versions of Xero have consolidation options. But it means extra cost, although if you have a parent entity which has no payroll and does little trading (transactions with third parties) you can probably get by with a lower-cost plan.
Multiple profit centres
QuickBooks and Xero have options to link transactions to "categories"; what we used to do with account prefixes, to identify divisions, profit centres or cost centres. Xero calls these "tracking categories" and QuickBooks has classes. They are not a bad solution although they do require coding in some detail when doing data entry.
Accounting reports are pretty useless for the decisions which actually help a business grow. The traditional reports are slow, out of date and offer little to no insight into how you get sales, or what really drives your profit. (The Profit and Loss and Balance Sheet are really designed for outsiders like minority shareholders, banks and tax authorities). The only traditional report which I have much time for is the cash flow reconciliation.
None of these systems includes much in the way of analytics, although Xero has a report writer. There are a few cloud packages.
However, this is an area where the tools can take a backseat. Your business drivers are the heart of your competitive advantage. Eighty percent of a good analytics implementation is carefully designing a handful of key business drivers specific for your business in the context of its competitors and its market. The software aspect is 20%. You don't need 50 KPIs with very cool charts. You need less than ten or otherwise you can't focus.
MYOB Essentials (formerly MYOB LiveAccounts)
MYOB Essentials is a reboot, the second generation of its pure cloud bookkeeping package. It keeps the simplicity of the former LiveAccounts but offers a good API. MYOB lost years, and it suffers by being late to the market. However, MYOB itself appears to be resourcing integration with some well-known cloud packages, and the use of an web-based API means that building your own integration is easy (or cheap).
- MYOB Essentials is well supported, with very helpful live support included in the subscription.
- It's a real double entry accounting system with real live feeds from bank accounts (but it doesn't have Perpetual Inventory).
- Given it's a real accounting system, it's not complex. It's fast to get started.
- MYOB Essentials has some big functional gaps. No inventory, no support for different credit terms or even rudimentary job costing. It now has payroll, at least.
- Reporting is basic. Almost no support for cash flow forecasting. Virtually no export to Excel.
- LiveAccounts looks quite close to MYOB. The default chart of accounts follows the same numbers. The BAS report looks like BAS Link.
While Essentials is a big improvement from MYOB LiveAccounts, MYOB clearly does not expect it to appeal to "larger businesses" (which it defines as > $3m). MYOB points people to a hybrid-web version of its traditional MYOB product, AccountRight, and from there it offers MYOB Exo, a traditional (and not very impressive) ERP package. MYOB is steadily adjusting to the new world; it remains to be seen what happens to its market share.
MYOB AccountRight Live
Most of MYOB's customer base is using AccountRight Premier, the traditional MYOB product. It is basically a technological dinosaur -- a slow, crash-prone non-server backend with a limit of three years of data and idiosyncratic user-interface which hasn't changed much. Although recently MYOB has made the interface look more modern, and MYOB has used a much better database file format for the .myox files of recent versions. Reports from businesses I work with tell me this doesn't help when more than a few users are active, and reporting is still as slow as ever.
MYOB has two cloud solutions: MYOB Essentials, targeted at the low-end of MYOB customer base, and the only hybrid product on the market, AccountRight Live. Hybrid means it is possible to keep the data in the cloud, allowing easy remote access. The software normally used to access cloud software is a browser, but in the case of AccountRightLive, it's a Windows-only package. So you still need Windows and all that entails. No OS X, Chromebook, Linux, iOS or Android access.
It is a new product despite the familiar name. The latest pricing options have higher-end plans which offer stock and payroll; the functionality may not be exactly the same as AccountRight Premier but it's close (on the more expensive plans). It doesn't support the ODBC driver, which is bad news for businesses which use add-on software for MYOB. Accessing AccountRight Live still requires use of AccountRight installed on a Windows PC. It is has two modes of operation. In "cloud" mode, users are accessing a MYOB file on the cloud. No one can use local data in this mode.
If someone wants to use it locally, the system goes into single user mode. Cloud access is now read-only. Apparently this means that somewhat paradoxically, you need to have internet access in order to go offline (or how else does the cloud file know a user wants to checkout the file in order to go offline?). MYOB warns that cloud mode may be slow compared to the "fast" desktop version. Note that this also means you need to resume access to the internet to unlock the cloud file so that other people can update MYOB.
The API seems complete.
From the user's point of view, there is one benefit to compensate for the lack of a true cloud solution:
- access to data offline (but this locks all cloud users out), which can also be viewed as a very easy way to take your data with your when you end a subscription.
There are lots of disadvantages, though.
For users or small businesses who are looking for a mobile-device approach to business, AccountRightLive requires you have to a Windows laptop with you. Xero, in particular, has a reasonably capable mobile phone/iPad app. There is an AccountRightLive Windows App which is read-only (can't make invoices), but it only works on Windows mobile devices which even Microsoft appears to have given up on.
AccountRightLive also has a purely local datashare model, which seems very similar (in practice) to traditional AccountRight.MYOB says that the local data sharing works for up to five users. This is basically the same as the practical limit of the old software. Performance can be abysmal. I am importing product updates into AccountRightLive now (in cloud mode) ... a simple CSV. I am only updating one price tier ... that is, the CSV has two columns: a product ID, and the new price. It is taking about three seconds per row (not 3 per second). Admittedly this is while others are using the system, but this is extraordinarily slow. AccountRightLive is not a performance solution for problems with traditional MYOB.
Overall, it's hard to find advantages which outweigh the disadvantages and there are certainly a few questions I would ask before taking steps down this path.
Strategically, I wonder: why does AccountRightLive exist, when MYOB has a competing online solution? Is MYOB Live Essentials going to be starved of feature development to make sure AccountRightLive has a point of difference?
MYOB's other products
MYOB has a range of other products. For many years, its strategy to upsize businesses was to move them to new products, like Myob EXO, a traditional ERP. I don't think it worked very well, and small ERPs are now very much under threat from cloud offers. MYOB has a new product for larger businesses, MYOB Advanced, which is a cloud ERP bundling the usual suspects (such as a CRM). I don't know anything about it as this stage. EXO was a completely different product and offered no synergy to MYOB Account Right users except for a data import wizard, and I suspect MYOB Advanced is likewise an acquisition. Pricing is not directly available, which I find old-school.
The contrast with the promise of Open API-based products is stark: with those, you grow by integrating functionality, not by changing platforms. This gives you the chance to choose the best CRM for your industry, for example. It is interesting that few vendors attempt to bundle online stores anymore: the stand-alone products quickly became overwhelmingly superior. This is true of other modules as well, in my opinion.
The elephant in the room, at least in Australia/New Zealand, is Xero. Xero is a genuine disruptor. Xero launched later than Saasu, but with a crystal-clear understanding of their market and what a cloud-solution should offer, Xero looks like a winner. Every third party product integrates with Xero; it is the iOS of the cloud accounting market.
Xero is a good accounting package. Australian localisation is second to none. It has an excellent and well tested API. It has promoted a good certification program to develop skills among bookkeepers, and there is a lot of community support. Functionality improvements are constant. Our clients are quite simple delighted with Xero, and it's my default recommendation.
In March 2015, Xero addressed one of its biggest problems, by finally adding inventory. But it's a basic stock module. For more sophisticated requirements, Xero defers to other cloud-players, which use Xero's API to integrate easily. This offers some surprisingly powerful cloud ERP/supply chain solutions. There are cloud providers who offer inventory management solutions approaching the capabilities of respectable ERPs with licence fees above $50K. These packages provide multi-site inventory management, purchase orders and sophisticated sales order systems. And of course, integration with online stores like Shopify is supported "out of the box".
Note that QuickBooks Online also has integration with some advanced supply chain cloud packages, but Xero's integration choice is better. There are some notes here about integration, but please contact GrowthPath for more information.
In terms of core accounting functionality, Xero is somewhere between MYOB Essentials and AccountRight. But with Xero, extending capabilities is easier than any of the competition. No package has a better API, and Xero also has the largest developer mind-share.
I think most medium sized businesses will find Xero's payroll, basic reporting and GST functionality fine. Like QuickBooks, AccountRight and Saasu, Xero requires that you understand bookkeeping. MYOB Essentials reduces functionality and makes interface choices to be more accessible for one-person businesses. For bookkeepers, here's a shout-out to Xero: it supports auto-reversing journals, which is a really nice touch, greatly appreciated by people using accruals to get good profit figures per month. MYOB and Saasu don't do this; some versions of QuickBooks do but not the cloud versions.
Xero offers tracking categories to support segmenting your business.
Xero shines as part of a cloud-based workflow. Here it is well ahead of its competition. Export of reports into Google Drive is native, for example. Images and notes can be attached to most records. Saasu is making some recent strides in this direction, and its use of tags is becoming sophisticated.
Xero support if you run into difficulties is unfortunately basic. Xero expects that you get support from your bookkeeper or accountant. The amount of online help is copious, at least.
Xero's transaction limits: This is a confusing picture, partly because the internet never forgets. Xero has been around for a while, and the business was unwilling to overcommit, leading to the infamous "1000 transactions a month" rule, a statement which is at least five years old. In the meantime Xero's backend resources have increased enormously. However, the problem we have is that Xero will not commit to anything above this old limit, and there is no good way to size in advance. Transactions are not very well defined: is it a bank statement line, an invoice line, an invoice ....? Xero is vague. A bit like Captain Barbosa, these are now "guidelines" rather than actual rules, and Xero support invites users experiencing problems to get in touch with support. It is clear from forum discussions that performance degrades at some point, and this point is easily reached if Xero is treated as a retail POS, which can generate many customers and many invoices. For medium sized businesses, treat Xero as a back end and take only consolidated figures. In fact, if you use a cloud POS like Kounta, this is what happens in the integration to Xero. If the integration you use doesn't do it, an option may be to consolidate transactions after they arrive in Xero.
However, consolidation is not a good option for open documents (unpaid invoices), so consolidation is an option for retail, but not for complex wholesalers.
To try to bring some certainty to this (and comfort for our clients), GrowthPath conducts stress testing. Some of GrowthPath's generic Xero stress test results are published here. In our testing, Xero performs better than you would expect if you were guided by the "1000 transactions" rule.
I still come across people who don't know Saasu. Saasu is older than Xero, and it's Australian. So why is it relatively obscure?
For strategic reasons. The founders of Saasu have chosen not to raise millions and burn it on marketing. I'm not sure that was the correct decision, but it's the main reason Xero is more well known. And Xero is still not cashflow positive (as of early 2015).
As a product viewed on its own merits, Saasu is good. Saasu is better value for money than Xero, and it does more. Because it was designed to explicitly win business from LiveAccounts, it offers a perpetual stock module with features which at least equal MYOB AccountRight and in some cases exceed it, a sales order module which includes quotes, and a workable Purchase Order module. GrowthPath uses Saasu; we moved from Xero because its core functionality was better, and because we were promised a proper API.
The stock module has expanded and maintains a clear lead over competitors, particularly in the large plan, which allows "attributes" to be added to stock. You can customise these: they can be used for multi-location, or for variants (size, color etc).
The stock module (standard and large) lets you set reorder points and will generate replenishments orders in a semi-automatic process. Costing is via the average cost method, which is in my opinion the best choice if you are limited to only one method. It has kits ("combo-items"), this includes creating kits which consumes the component items.
More about inventory attributes and the Large plan: As of February 2015, this feature is not actually adding much value. While you can add items to Saasu via a spreadsheet import, attributes are not supported in this mechanism. Instead, you need to make a Purchase Order. Saasu points out that when importing opening stock balances, you have to use a PO anyway, which is fair enough, but the rest of the "Items" features support non-inventory items, such as service items, which don't need an opening balance. As well, if you're entering opening balances under the standard inventory functionality, you can define the items in advance which makes data entry of the opening stock much faster, since you only enter quantities.
Worse, accessing the Attributes definition screen is a separate click to access a pop-up (or modal) window. You can't validate the data entered into attributes: you may wish to ensure that values entered as a Location are from a well-defined list to avoid typos, but you can't. Saasu requires you to enter a quantity on the PO line, which implies that attributes are limited to inventoried items (not virtual or service items), although I suspect you can work around this. After you close the modal window to add another line, you lose any insight into what attributes you chose; it is not displayed anywhere on the PO screen. It's the same on the Sales Order screen. So it's cumbersome to setup, cumbersome to use and the possibility of data entry error is too high. Attributes are supported by the new API, so if you have the skills to use the API you can do a data conversion much more easily, but for the average user this is a disappointing feature. As well, the "transfer" function doesn't work with attributes. If you want to move stock from one type to another at the attribute level, you need to use POs and Sales Orders to buy & sell to a dummy contact. I like Saasu, but this feature is not ready for live use. Many customers who use attributes, like location or size, are probably better off sticking to the standard module and coding the attributes into the item code (e.g. "tshirt/Yellow/M"). Hopefully the next release will let the front end catch up with the change Saasu has built into the back-end.
For a long, long time, Saasu's API was incomplete. After a lot of promises, a modern API now exists, but it is still only partially complete. The old API was good enough for some success with third-party providers. The new API is promised to be on par with Xero, but Saasu is slow at delivering on this promise. Frankly, this is the greatest weakness of Saasu. The product started with a vision to win MYOB customers with a cloud offer, but they didn't really get the importance of APIs (so it seems to me). Personally, as a Saasu user, I am looking forward to API support for bank-reconciliations ... but I'm told this is unlikely to happen. The other gaping gap in the API is access to summary data, such as account balances. This is a priority for Saasu, I'm told.
By combining both old and new, we can say there is a basic API, and the superior functionality of the core product cf Xero makes Saasu a strong contender. I tend to recommend for smaller businesses more often than Xero, although the larger the business and the more important the API is, the more the scales tip back in favor of Xero.
Saasu support can be quite good. Email and phone response is usually helpful and fast.
Saasu transaction limits: Saasu is willing to support high transaction businesses.
I am starting to investigate Quickbooks Online and this document will be updated by the end of March 2015. The licence model is now based on the number of simultaneous users, which is better than its old per-user model. There are three price plans, currently heavily discounted for the first year. Quickbooks is a good-looking package and offers similar basic functionality to Xero and Saasu (like Saasu, it has a stock module, at least in Quickbook's top pricing tier). The online version does a good job of importing data from a traditional Quickbooks application. First impressions are quite favourable: it is fast, and has a good set of reports. It looks very much like a desktop app ported to the web, but it is a genuine cloud product. I tested product support, and it was impressive. Via an offshore call centre, the tech support did a remote screen share into my Mac and helped me diagnose the problem. The problem indicated a lack of maturity in the product; payroll reports can't be run from the general reports section, which is confusing. However, the support was the most effective I have received from any of the cloud products.
Quickbooks Online does have inventory, but it is very minimal. For example, it doesn't provide any insights into available stock during order entry, and does not object to invoices which send stock levels negative. It does have basic location tracking (which goes all the way through the financial accounts so it can be used to generate P&L per location). Transferring stock between locations probably requires manual adjustments. There is no assistance with automatic reordering.
I think it is likely that this product will keep some Quickbooks users in the Quickbooks camp and if I was a small business already using QuickBooks, I would look first at QuickBooks online. The importance of cloud ecosystem (i.e. easy expansion via third party products) is the main weakness compared with Xero. Evaluating this means some vision for your company and the role of cloud-based IT.
The traditional version of QuickBooks is well regarded by bookkeepers, who in my experience universally prefer it to MYOB AccountRight. It is currently discounted, where Saasu and Xero have sufficient market power to be increasing prices, so that is a sign of low market share (I guess).
Reckon is an Australian company. For more than 20 years, Reckon had the local licence for Quickbooks. Reckon didn't simply resell Quickbooks; it added all the Australian localisation that gave Quickbooks such a stellar reputation among small business accountants and bookkeepers. However, Intuit, the US owner of Quickbooks, has terminated the agreement and Reckon needed to transition to its own products.
Since it has a similar history as MYOB, selling desktop packages, it's no surprise that the small business offer is quite similar.
There's an entry level pure cloud package, ReckonOne, and a "hosted" version of the traditional desktop package (which is still very similar to QuickBooks).
And don't forget cloud productivity solutions
Such as Google Apps, Office 365, Infusionsoft ...
In their own right, cloud-based accounting systems offer a lot of benefit. You can magnify it by moving to cloud-based collaboration tools.
The main players are Google Apps for Business and Office 365. This is not the place for a comparison, but I prefer Google's solution since it offers a clean break from desktop software, is much easier to manage, works well from ChromeBooks (which are a Very Good Thing) and it's cheaper to boot.
Microsoft has a cloud offer as well (Office 365), reluctantly at first but now that it sees the writing on the wall, it's taking it more seriously, although the total offer still appears designed to be anchored to desktop users.
I have no doubt that Xero, Quickbooks Online and all serious players will support both Google and Microsoft, plus Dropbox, Box and Slack won't be far away.
Xero at this stage is clearly leading when it comes to integrations. It has offered Google Apps integration for perhaps two years at least, and now has some Office 365 support and Box. There is a clear pattern that Xero is always ahead of its competitors when it comes to cloud integration. Generally speaking, the first movers (Xero and Google) have kept their advantage via a fearsome pace of new features.
Cloud software is exposing users to the concept of tagging items which are related. This is a very flexible way of grouping data. Xero and Saasu get this and do it quite well. Xero's implementation is better, I think; it extends further into reporting. In this area, the pure web-app pedigrees of Saasu and Xero stand out. And Xero's clear focus on Open APIs is brightest of all.
When are cloud accounting solutions not right for your business?
I don't pay any heed to objections to cloud technology as such. Yes, cloud packages require you to be online. That's about as useful as telling someone that a phone requires a mobile network. It's true, but business needs to be online now. I also dismiss data security concerns. There are more risks with a hard drive in your office.
You lose access to data when you stop paying: this is a more serious concern for small businesses. I could argue that your $900 phone is useless when you stop paying for network access, but people have expectations of a permanent licence. As I've said elsewhere, a good compromise is to offer read-only access, but this feature is not widespread yet.
Moving to cloud accounting may not be right for your business. The pros and cons roughly speaking look like this:
- You will lose core functionality if you come from a mature ERP
- You will save a lot of money.
- You will open the door to much better collaboration, remote access, mobile-device use, and workflows which deliver higher levels of productivity
- You will better integrate peripheral IT systems such as online stores, business analytics (such as the open source Pentaho), CRM and helpdesk software, Google Analytics, marketing automation tools (Infusionsoft, for example) and so on.
- New employees get up to speed faster
Only the first point is a step backwards, but it may be significant. To address it, you need to carefully consider the best cloud packages to supplement the functional gaps of your cloud-accounting choice, and see what functional gap remains. The real gap between traditional ERP's and cloud accounting packages is in supply chain management: good movement, warehousing, backorders and returns, etc. There are now at least three good cloud packages which offer a very good set of supply chain functionality. However, the integration is not as "rich" or seamless as it is in monolithic software. For example, to see the details of a customer order taken in Unleashed when using Xero, Xero shows the amount owed but you need to click through to Unleashed in a second browser screen to see products ordered.
Cloud software is a long way ahead of traditional ERP software when it comes to online commerce, CRM and marketing automation. For business analytics, it's a draw.
Increasingly, the advantages of going to the cloud outweigh the disadvantage. Three years ago, in the first version of this document, I said that medium-sized businesses probably faced one more one five-year cycle on a traditional ERP. Half way through that period, I am confident that cloud solutions are starting to appeal to businesses looking to exit the traditional approach.
Xero, Saasu, Quickbooks Online and MYOB Essentials, in more depth...
In the past, I went into a deep discussion of the functional differences between the packages.
This is a now a bit beyond the point, since integration is more important than core functionality. Businesses should consider their accounting package as part of their "software stack".
Xero is the purest player and with the additional of inventory, it is now a very well balanced offer, easy to recommend for many businesses. It offers the best API, the best interface and the best third-party developer support. It has the worst support, though.
Saasu and Quickbooks Online have good and perhaps better "out of the box functionality" although I now doubt that this can outweigh Xero's advantages.
MYOB Essentials is basic with no ambition to be anything more, except perhaps to feed you into MYOB's traditional product offers.
Integrations and market share
At this stage (March 2015), Xero is the system everyone supports first with out of the box integration. For example, three leading cloud-based supply chain packages are Unleashed, TradeGecko and Stitch. They all support Xero. Only Stitch supports QuickBooks Online, and both Unleashed and TradeGecko are in the final stages of beta-testing their integration; both should be ready by June 2015 (they both make it available already to interested evaluators). (Update: Unleashed will exit beta before the end of March 2015.)
Vendors have voted with their feet: the other accounting packages are down the pecking order when it comes to prioritisation of "click-and-go" integration functionality.
Xero is innovative, has a mature API and great mind-share as a disruptor spending heavily on marketing, and QuickBooks Online is backed by a large business which is visibly moving its legacy customers to a cloud-solution. I believe that Saasu is unlikely to achieve critical marketshare, plus it makes life difficult for third party developers by not have a complete API, and MYOB has a confused approach which is not effectively moving its customer base to the cloud (from what I see), and forces third party vendors to consider that clients of AccountRight Live may be running locally, disabling web-based APIs.
Note that as long as a package supports REST-based APIs, custom integration can be built quite easily. I have built custom interfaces for a few apps in a day or two. Out-of-the-box integration is not superior to this approach, since it uses exactly the same techniques, but it's cheaper.
What you get before you look at integrating with third party packages
If you want to focus on out-of-the-box functionality, you need to answer these questions first:
Do you need inventory management? If yes, you have to consider if the the minimal functionality of the Saasu, Xero or QuickBooks Online with suffice.
Do you need foreign currency? If Yes, MYOB Essentials is eliminated.
But if you need online sales, good inventory management (backorders, variants etc) then consider Unleashed, TradeGecko or Stitch ... this handicaps Saasu, and gives a lead to Xero. At this point, they support Xero better than QuickBooks Online. GrowthPath has assisted several clients choose and implement these integrated cloud solutions.
There are products which provide integrations where none are officially supported. A simple example is Zapier, a more complex approach is OneSaas.
I will now summarise in a simple table. To represent the traditional world of mid-tier ERPs, I choose Sage ERP (accpac), a very traditional system (which I quite like).
|Module||MYOB Essentials (was LiveAccounts)||Xero||Saasu||QuickBooks Online||Sage ERP (Accpac)|
Minimal, but improving. Quotes are now possible. Pricing and credit terms are very minimal.
Third party options are very strong.
|OK. Third party options are strong. Support quotes, sales orders and invoices. Doesn't do backorders but demand on sales orders is reflected on inventory reports. Pricing and credit terms are very minimal.||Very sophisticated. Backorders, partial payments, complex payment terms. Returns, under payments and over payments are well handled. The interface is dated and the system is batch based, meaning careful attention to routine processing is required.|
|Purchasing||No||No||Basic to good. Can make back-to-back orders, and will generate replenishment POs when stock reaches certain points.||Strong but bureaucratic|
|Payroll||OK for small payrolls||OK (plus good third party modules for more complex situations)||OK (plus good third party modules for more complex situations)||OK||No Australian localisation. Requires third party modules.|
|Perpetual Inventory (i.e. "real" inventory)||No||Yes, as of March 2015 . As of October 2015, the API fully supports 'tracked inventory', as Xero calls it.||
Yes in all plans. Including kits, reordering and non-inventory items.
More inventory features in the Large plan, which cover multi-locations and variants (size/color etc).
Some third party choices offer excellent functionality.
|In the top-tier, there is basic Perpetual Inventory. Saasu's is better.||Outstanding. Multiple sites, multiple stock-take procedures, multiple valuation methods.|
|Job costing||basic. Accountants are supported by MYOB's practice management software||3rd party solutions, including Workflow Max, bought by Xero. Accountants are supported by Xero's practice management version||
|very limited, but third party solutions||optional modules.|
|Intercompany (auto-balancing entries)||No||No||No||No||3rd party solutions are very good.|
|Segmenting the business||No||Yes (tracking categories)||Yes (classes)||Yes, via account structure. Very good.|
|Securing Access to functions, period locking||OK||OK||OK||To be assessed||Very strong controls over functionality. Locking is sophisticated: submodules like AR can be locked while still allowing GL postings.|
|Cashflow management||OK||OK||Includes an interactive drag and drop cashflow forecaster which is actually useful.||To be assessed||OK. Lots of potential insight, but hard to use.|
|Analytics and Dashboard||Not really||Not really. But it has the best report writing tool, even though that just lets you customise traditional accounting reports. Integration with 3rd party.||
Integration with 3rd party.
|To be assessed||No (comes with a one-user Excel tool)|
|Audit trail||Not enterprise class.||Not enterprise class, but deleted transactions are mostly viewable.||Not enterprise class but deleted transactions are mostly viewable||To be assessed||Very good.|
|Multi-currency||No||Optional. Basic.||Optional. Basic.||To be assessed||Very strong, world-class.|
Kounta POS: Yes (Native).
Unleashed sales and inventory: No
Kounta POS: Yes (Native).
Unleashed sales and inventory: Yes (Native)
Example: Kounta POS: Yes (Native)
Unleashed sales and inventory: Yes (third party)DIY: Easy. Shopify: via third party.
To be assessed
DIY: Possible. Talent is rare (although GrowthPath has expertise). Requires use of old technologies, and limited to Windows.
|online payment integration||To be assessed||Yes||Yes||To be assessed||No. Needs custom coding.|
|API & integration||
API is satisfactory, after years of no API. Not much out-of-the box support, but possibly growing.
|Outstanding, best in class and with momentum. Every cloud package offered to the Australian market will offer Xero integration, and the API makes it cheap to build your own integration.||API has only recently become satisfactory, and Saasu is paying the penalty for taking so long.||
To be assessed
Possible via use of Win32 COM (GrowthPath is experienced in using Python to drive Accpac ERP and we have interfaced Accpac to Shopify, Infusionsoft and Pracsoft). But it is much more cumbersome than Web APIs. Third party integration is poor. The vendor has online , CRM and business analytics packages which are classic examples of the "jack of all trades" problem: they are ok.
Raw data is stored in SQL, which is easy to access and for reporting, an alternative to using an API.
|Costs||Somewhere between 10 and 100 times cheaper than a traditional solution||Somewhere between 10 and 100 times cheaper than a traditional solution||Somewhere between 10 and 100 times cheaper than a traditional solution||Expensive to buy. Expensive to implement. Expensive to keep. Productivity payoffs in high-volume manual data entry.|
|High volume manual data entry||Not really expected||Some optimisation has been made, but browsers are not ideal for this. High volume data entry should be done via the API. The API is mature.||Some optimisation has been made, but browsers are not ideal for this. High volume data entry should be done via the API. The Saasu API is not yet fully mature.||Outstanding. This software comes from the era of manual data processing.|
|User training requirements (e.g. new staff) (assuming the user has basics GST and double-entry bookkeeping)||Very minimal||Very minimal, although non-standard events like customer overpayments are not obvious. There are plenty of YouTube videos and help documents. There are many certified book-keepers||Very minimal, although non-standard events like customer overpayments are not obvious. There are plenty of YouTube videos and help documents. Saasu provides telephone help.||You need formal training because the software is complicated and mistakes are hard to correct.|
|Transaction limits (sales) [these are rough estimates, not official vendor numbers, and this is an uncertain science]||Unknown||2000 to 4000 invoice lines a month (probably). 5000 customers max. Consolidation via the API may be a fall-back. See here for test results||High limits, probably 10x Xero, possibly more.||Similar to Xero (probably)||Very high (50 x Xero to ballpark it)|
|User support||Good online chat support||The worst support of all (sorry to say). Really no easy way to get immediate human support. You are expected to contact your bookkeeper or accountant.||Quite easy to get authoritative help on the phone.||The support winner: fast access to a helpdesk supported by screen sharing which is extremely effective.||Contact reseller at $1000 per day.|
Congratulations on working your way through this!
Google analytics tells me that many visitors spend ten minutes or more on this page, which is a lot for a web page.
If you're one of them, you may also be interested in using your accounting data to grow the business, not just fill in the BAS.
These articles may be interesting:
- Contribution Margin vs Gross Margin, a simple, easy improvement to reporting for more profitable decisions
- Choosing an inventory method: Perpetual or Periodic. The Perpetual method is vastly superior and well worth the extra effort
- Cash vs Profit: the uses and abuses of these two performance measurements
- Measuring your procurement effectiveness with the Purchase Efficiency KPI
GrowthPath has a fast process to help you select and setup the correct system. Fees start from $199 for new businesses. We do custom investigations for firms looking to save $15K to $30K in avoided annual maintenance fees linked to legacy ERP systems.