Accounting Advice

What is the biggest business Xero can cope with?

13 Nov 2017

At Accounts and Legal, we deal with businesses of all sizes, from entrepreneurial start-ups to established enterprises. In our experience, cloud accounting software, and particularly Xero, enhances the efficiency of any small business’ accounting process, but what are its limits?


As a software solution, Xero’s operational capacity is not affected by the scale of the numbers involved – 1 invoice of £1m or 1 invoice of £1 both take the same amount of processing. Instead, what matters most is volume.


Xero’s capabilities in coping with a high volume of transactions came into question at Accounts and Legal HQ when Kiko Cosmetics, a national retailer with circa 50 stores nationwide, got in touch to see if we could help improve their reporting processes and speed up management accounts production.


Kiko’s previous outsource provider was quite traditional in their approach – resorting to manual solutions in many cases. Furthermore, the existing Sage 50 software had run out of steam and become temperamental.


It was immediately apparent that the company’s new Head of Finance was open minded and ready to hear innovative solutions. They had investigated a Sage 200 upgrade, but were also aware that sister companies in the group were successfully using Microsoft AX.


Nonetheless, they were not ready to adopt Microsoft AX in the UK. So, we proceeded to dig and probe around other systems that existed before one of the team bit the bullet – “why don’t we use Xero?”.


In front of the prospective client’s eyes a live debate ensued between the pitch team as to whether Xero could work. This impromptu discussion was followed by general agreement that it might and was probably worth a try. Not really the conclusion to fill a prospective client with confidence.


Back in the office, one bright spark in the room suggested we just ask Xero directly, so we did. Their response informed us that the soft limits for transaction volume are around 2000 sales, 2000 purchases and 4000 bank lines per month, after which Xero’s performance “deteriorates dramatically”. 


To summarise the position post-meeting:


  • c. £30 million revenue business with an average transaction value of £5 (our back of an envelope maths put that at over 6 million sales transactions a year).

     

  • 50 sites with 500 staff and associated costs (50,000 transactions per year).

     

  • Recommended software solution with a processing capacity of 96,000 transactions per year, 5.95m short of what we would ultimately need.

With the bit between our teeth and our sights set on helping our prospective client, we looked at how we could use the existing internal systems to our advantage.


As the issue was with income and the sheer volume of transactions, we decided we could use our existing front of house system.


This would allow us to hold the transaction data for Xero and put through a single monthly transaction for each site, so instead of 6 million transactions we could have 600. We would also do the same with the bank to consolidate collections.


The task of manually typing 30,000 purchases did not seem like an effective use of time, so we to set Receipt Bank to work, digitising the paperwork and learning where things should be posted.


With our confidence having now ticked up from “apprehensive” to “optimistic”, we went back to Kiko to pitch our plan. To their credit they heard us out, and by the time we got to the end they were ready to give it a go.


To cut a long story short – two of our team, Keir and Megan, reworked every system and process to optimise for both Xero and Receipt Bank, and it worked.


Now, we still get all the magical batch payment and auto-matching of purchase invoices from Xero. We use the monthly invoice as a control account to give us Cash in Transit, and we can report the P&L for each of the 50 sites in a bespoke format, all in a couple of clicks.


With ambitious plans to continue expanding in the UK, this client is going to continue to push the boundaries of what is possible on Xero – if and when we do break it, we’ll be sure to let you know!


So, there you have it. We haven’t managed to definitively answer the question, although further updates are a guarantee. One thing we can now confidently say is you can run a very big business on Xero if you are willing to innovate.


And the best bit? We cut Kiko’s accounting fee in half!  

Chris Conway

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Managing Director, Accountant & Corporate Finance Specialist

0207 043 4000

About the author

Chris joined Accounts and Legal as Managing Director in November 2015. Chris’s primary role is ensuring the firm runs smoothly on a daily basis, supporting the growth of its entrepreneurial clients and delivering the firm’s own ambitious growth objectives. 

Having qualified as a Chartered Accountant (ICAEW) in general practice with a Top 20 firm in 2010, Chris quickly chose to specialise in corporate finance. During his 5 years Chris worked on over 70 transactions involving SME’s, from company valuations and restructures to substantial equity and debt fundraisings. He also advised on the sale and purchases of businesses, both to trade buyers and financial investors, providing advisory and due diligence services.

  

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