Using Xero for Agency Finances

Agencies struggle with disjointed systems for managing client finances and projects.

Luckily, Xero accounting software helps agencies streamline financials across clients and projects in one place.

In this post, you'll learn how to leverage Xero's features to simplify client onboarding, billing, expenses, project tracking, and reporting for complete oversight of agency finances.

Introduction to Xero for Agencies

Xero is a popular cloud-based accounting software that helps agencies streamline finances for their clients and projects. With Xero, agencies can access real-time financial data from anywhere, automate tasks, and integrate with other platforms.

Overview of Xero Accounting Software

Xero offers core accounting features like invoicing, expense claims, inventory, financial reporting, and more. It also has over 1,000 app integrations through the Xero App Store to connect to other tools agencies use. Key highlights include:

• Cloud-based access: Access real-time data from any device.
• Accounting and reporting: Generate invoices, track expenses, monitor cash flow.
• Integration: Connect to CRMs, ecommerce platforms, PayPal, and more.
• Automation: Schedule invoices, payments, and reconcile bank feeds automatically.

Key Benefits of Xero for Streamlining Client and Project Finances

Xero provides visibility and control over client finances and project costs:

• Centralized dashboard: View all clients and projects in one place to simplify management.
• Project tracking: Use project codes and categories to track time and expenses.
• Multi-currency support: Invoice clients and accept payments in different currencies.
• Automated workflows: Set up approval chains and repeat billing to save time.

With robust accounting tools and integrations, Xero gives agencies enhanced oversight into the financial health of their business.

Can you use Xero for project management?

Yes, Xero offers robust project management capabilities to help agencies streamline workflows. Here are some of the key features:

Xero Projects

Xero Projects is a built-in tool that allows you to create projects, track time and expenses, invoice clients, and monitor budgets. You can:

• Set up projects and sub-projects
• Assign contacts and create project teams
• Log project time and expenses for accurate job costing
• Invoice clients directly from each project
• Compare budgeted to actual amounts at a glance

Integration with PM Tools

Xero integrates seamlessly with many popular project management tools like WorkflowMax through the Xero App Store. This allows you to connect CRM, sales, project management, and other systems into one central finance hub powered by Xero.

Coding and Approvals

You can create approval workflows and code invoices to projects for better reporting and tracking across clients. This helps when managing multiple projects.

In summary, Xero provides a flexible platform to manage key aspects of agency project finances, with room to scale through integrations. The software aims to help agencies reduce admin time and operate more efficiently.

Can Xero do project accounting?

Yes, Xero has robust project accounting and tracking capabilities through its native Xero Projects feature and integrations with other project management tools.

Here are some of the key ways Xero can help with project accounting and tracking:

• Xero Projects allows you to create projects, track time and expenses, invoice clients, and run reports to understand project profitability. You can break projects down into tasks, track progress, set budgets, and automate billing based on project milestones.

• Xero seamlessly integrates with other leading project management tools like WorkflowMax and Monday.com through the Xero App Store. This allows you to manage the complete project lifecycle from planning to accounting within one connected ecosystem.

• You can use project codes and tracking categories to tag transactions in Xero. This makes it easy to run project accounting reports filtered by client, project, or other parameters to analyze performance.

• Features like batch invoicing and expense claims help streamline project billing and simplify administrative tasks for project teams.

In summary, Xero's native features and integrations provide robust support for agencies and teams collaborating on client projects. It facilitates detailed project tracking and financial oversight across the entire project lifecycle.

What is the difference between Xero and Xero Projects?

Xero is a cloud-based accounting software that helps small businesses manage their finances. It covers core accounting functions like invoicing, expense claims, bank reconciliations, and financial reporting.

Xero Projects is an add-on application available on the Xero App Store that extends Xero's accounting capabilities for businesses that work on projects. Here are some key differences between Xero and Xero Projects:

• Purpose: Xero handles day-to-day accounting tasks while Xero Projects enables project management capabilities like tracking project time and expenses.

• Key Features:

  • Xero: Invoicing, expense claims, bank reconciliation, financial reports
  • Xero Projects: Time tracking, project budgeting, project reporting, project invoicing

• Target Users: Xero serves all small businesses. Xero Projects specifically targets service-based businesses like marketing agencies, IT consultancies, construction companies etc. that deliver projects.

• Integration: Xero Projects seamlessly integrates with Xero accounting. All project invoices and expenses flow automatically into Xero as billable transactions.

• Pricing: Xero Projects pricing starts at $30 per month while Xero starts at $10 per month. Businesses need a valid Xero subscription to use Xero Projects.

In summary, Xero handles accounting while Xero Projects extends Xero for project management and billing capabilities. Businesses that deliver client projects can use both tools together for a streamlined workflow.

How do I track project expenses in Xero?

Tracking project expenses in Xero is easy with their built-in expense tracking features. Here are the key steps:

Add New Expenses

When you want to add a new expense related to a project:

• Tap the "+" button, then tap "Add expense"
• Select whether it is an estimated or actual expense
• Enter an expense name or select from existing expense items in your inventory
• Optional: Tap "Track to estimate" to connect the expense to a specific project estimate

This allows you to quickly log expenses as they occur and tie them directly to project estimates for tracking.

Expense Settings

In the Xero accounting settings, you can configure default expense accounts and tax rates to streamline expense entry. You can also set up project and tracking codes:

• Project codes - Assign codes to projects to make tracking expenses faster
• Tracking codes - Additional labels to track expenses by categories like client, job type etc.

Using codes makes reporting on project expenses much easier.

Reporting

To analyze project expenses, Xero offers real-time reporting such as:

• Expenses by project over time graphs
• Project expense breakdowns
• Expense tracking against estimates

The visibility into project costs helps identify any budget overages quickly so corrective action can be taken.

So in summary, Xero takes the pain out of tracking project expenses with easy entry using accounts, tax rates, and coding along with reporting for expense analysis. This allows agencies to keep tight control over budget vs. actual spending.

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Initial Setup with Xero for Effective Agency Finance Management

To effectively use Xero for agency finance management, there are a few key areas of initial setup:

Customizing Your Agency's Xero Organization for Client Onboarding

When first setting up Xero, create separate organizations for each client to keep their financial data isolated. This allows assigning specific users access to only relevant clients.

• Create a parent organization just for your agency
• Build new sub-organizations under the parent for each client
• Name sub-orgs clearly, like "Client A", "Client B"

This structure makes client onboarding smoother by eliminating financial data overlap between clients.

Adding Users and Configuring Approval Workflow in Xero

With separate client organizations, grant access to only relevant team members:

• Add users to the parent organization to access overarching agency finances
• Assign organization roles like Financial Controller, AP Clerk for appropriate access
• Add users to specific sub-organizations to view/manage individual client finances

Leverage Xero's customizable approval workflows for oversight.

• Require multi-person signoff on key transactions like vendor payments
• Set up reporting lines for approvals based on transaction size
• Automate approval routing to streamline the process

Connecting CRM and Sales Platforms to Xero

Syncing platforms creates a centralized data hub:

• Connect client CRMs like Salesforce for consolidated client and financial details
• Integrate project management tools like Asana to associate project financials
• Automate data flows between platforms to maintain clean books

Exploring the Xero App Marketplace for Agency-Specific Needs

With Xero as the financial backbone, leverage apps to enhance capabilities:

• Install billing apps like InvoiceNow to customize and automate agency invoicing
• Add project accounting tools like WorkflowMax for specialized project financial reporting
• Integrate e-commerce platforms like Shopify for unified cash flow monitoring

The Xero app ecosystem bolsters financial management efficiency.

Streamlining Client Finances and Project Management with Xero

Managing finances across multiple clients and projects can be complex, but Xero provides features to streamline workflows. Here are some tips for smoother financial operations over time:

Managing Projects with Xero Projects and WorkflowMax

Xero Projects enables creating projects and tracking associated billable time and expenses. Integrate with WorkflowMax for robust project management capabilities:

• Set up projects in WorkflowMax for each client
• Connect to Xero to sync financial data
• Log billable time and map expenses to projects
• View real-time budget vs. actuals reporting
• Automate workflows for approvals and status updates

This consolidates project and financial data for simplified reporting.

Efficient Invoicing in Xero for Recurring Revenue

Streamline billing across multiple clients:

• Use repeating invoices for regular billing
• Send online invoices for fast delivery and tracking
• Accept batch payments to match bulk invoices
• Set up automatic payment reminders

This saves time while ensuring steady cash flow.

Paying Bills and Managing Expenses Across Multiple Projects

Accurately track vendor bills, reimbursements, and other payables:

• Capture expenses via mobile app with receipt images
• Assign expenses to relevant projects
• Enter bills from vendors and set payment terms
• Pay bills individually or in batches
• Code expenses for financial reporting

Full visibility of payables by project facilitates analysis.

Implementing Project Coding for Streamlined Project Finances

Leverage project codes to organize financial data:

• Define codes for each client, project, and task
• Assign codes to invoices, bills, expenses
• Run project code reports for drill-down visibility
• Identify costs and revenue by codes

Adding codes provides dimensionality to simplify reporting across multiple projects.

By leveraging these features, Xero can enhance oversight into client and project finances, improving decision-making.

Enhancing Financial Oversight with Xero Features and Reporting

Utilizing the Xero Dashboard and Financial Reports

The Xero dashboard provides an overview of key financial metrics, with insights into cash flow, account reconciliation, expenses, invoices, and more. Users can access standard reports for accounts receivable, accounts payable, balance sheet, profit and loss, and bank reconciliation. These reports can be customized by date range, filtered by tags or contacts, compared year-over-year, exported, and scheduled for automatic delivery.

For agencies managing multiple clients, the dashboard displays top-level numbers across the entire practice to maintain visibility. Users can drill down into individual clients for more detailed reporting. Common customizations include adding margins, marking up expenses, and tailoring layouts.

Integrating Business Intelligence Tools with Xero

Xero offers an open API that enables seamless integration with various business intelligence (BI) platforms. By connecting Xero data to BI tools, agencies can build interactive dashboards, charts, and advanced reports. Examples include:

• Fathom: Provides additional metrics on revenue, cash flow, client profitability, and KPI tracking. Includes customizable templates.
• Power BI: Microsoft's analytics platform that transforms Xero data into interactive visualizations. Can incorporate data from other systems too.
• Tableau: Drag-and-drop interface to visualize Xero data with charts, graphs, and dashboards. Advanced analytics functionality.

These tools expand reporting capabilities beyond Xero's built-in options for enhanced business insights.

Creating a Purchase Order and Approval Workflow in Xero

Xero simplifies the purchase order process, ensuring proper oversight into purchasing activity. To create one:

1. Navigate to Accounts > Purchases > Purchase Orders
2. Click New Purchase Order and select vendor, date, expiry date
3. Add line items with description, quantity, unit price, account code
4. Save purchase order

An approval process can be configured wherein purchase orders route to managers or executives for sign-off based on thresholds. This is managed under Settings > Users > Approval Groups.

Purchase orders integrate with inventory, accounts payable, and reporting for streamlined oversight into procurement.

Connecting Apps and Tools to Xero for Comprehensive Financial Management

Integrating Xero with other platforms and tools can streamline workflows and provide a comprehensive view of agency finances. Here are some key ways to connect Xero to enhance functionality:

Linking Xero with E-commerce Platforms for Seamless Transactions

• Popular e-commerce platforms like Shopify, WooCommerce, and BigCommerce can sync with Xero to automatically import sales and facilitate invoicing
• This automates manual data entry and ensures transactions are accurately recorded in Xero in real-time
• Setting up an integration is straightforward within the platforms' app stores

Synchronizing Project Management Tools with Xero for Unified Tracking

• Project management tools like Asana, Trello, and Jira can integrate with Xero to connect project progress to financials
• This provides visibility into budgeted costs versus actuals spent for each project
• Automating this link eliminates duplicate data entry and reduces human error
• Project coding in Xero maps expenses/invoices back to specific projects

Leveraging the Xero App Store for Customized Agency Solutions

• Xero offers over 800 apps in their marketplace across various categories
• Apps like Receipt Bank, Hubdoc, and AutoEntry can simplify expense and receipt management
• WorkflowMax, JobProgress, and Practice Ignition specialize in job costing and agency workflows
• The app store enables fully customizing Xero to each agency's unique needs

With some setup, connecting Xero to other platforms can significantly improve an agency's ability to track projects, expenses, and financials in one unified system. This streamlines operations, provides transparency into the business, and enhances data accuracy.

Key Takeaways and Best Practices for Using Xero in Agencies

Xero offers significant advantages for agencies looking to streamline financial management:

Summarizing the Advantages of Xero for Agency Finance Management

• Provides consolidated view of client and project finances in one place
• Automates workflows like invoicing, bill payments, expense claims
• Flexible billing and payment options suit different client needs
• Robust accounting features simplify bookkeeping
• Scales easily as your agency grows

Reiterating Best Practices for Xero Setup and Ongoing Use

• Carefully structure organization into departments, locations
• Set up clear user permissions and access levels
• Connect to sales, project management, ecommerce tools via API early on
• Leverage full functionality - don't just use basic features
• Regularly review reports to spot issues, identify improvements

Final Thoughts on Streamlining Client and Project Finances with Xero

Using Xero strategically allows agencies to reduce administrative tasks, access real-time financial data, automate workflows, and provide flexibility to clients. This enables teams to focus on core operations, make data-driven decisions faster, and provide better service. Integrating Xero early on ensures it can grow along with your organization over the long term.

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