The best Xero tips and tricks for small businesses

Hello there, fellow company directors and finance enthusiasts! Today, we are diving into the world of Xero tips and tricks. Xero is an incredibly useful cloud-based accounting software designed to simplify your financial management. If you’re new to Xero and feeling a bit overwhelmed, fear not! In this blog post, I’ll guide you through the setup process and share some fantastic Xero tips and tricks to make the most out of this amazing software. Let’s get started.

Why I Recommend Xero

Before we delve into the nitty-gritty of Xero tips and tricks, let me share why I wholeheartedly recommend Xero for small businesses and startups. Long story short: I adore Xero, and of all the accounting cloud-based software I have used, Xero is my absolute favourite.

Xero is intuitive, user-friendly, and packed with powerful features that can streamline your accounting tasks, even if you don’t have a background in finance. With its cloud-based nature, you can access your financial data anytime, anywhere, and collaborate seamlessly with your accountant or team members. It’s like having your financial hub right at your fingertips!

It offers a variety of insightful reports, and makes it extremely easy for you and your team to code and track your transactions and understand the financial position of your company at any time.

How to Set Up Your Company on Xero

Getting started with Xero is a breeze. Once you’ve signed up for an account, follow these simple steps to set up your company.

1. Add Company Information

Fill in your company name, address, and other essential details in the settings section.

2. Bank Accounts

Connect your business bank accounts to Xero to effortlessly import transactions. Xero has an integration ith most business bank accounts, and if you like them, every single transaction that happens in the bank account will automatically be important in Xero, and will show up in the bank account section, ready to be coded.

3. Chart of Accounts

The chart of accounts is, essentially, the list of all the nominal codes your business needs to categorise the income and expenditure it incurs. For example, the income codes for a theatre company might be: Box Office income, Trust anad Foundations grants, Individual Giving donations, Co-production income, etc. Examples for expenditure codes could be: Props, Set, Costumes, Performers, Stage Managers, etc. 

Make sure you tailor your chart of accounts to match your business needs, so that you can track your transactions accurately. A good rule of thumb is to map your nominal codes to match your oranisation’s budget, so that it’s easy to track how well you’re doing against it.

You can add/delete nominal codes at any time.

Xero chart of accounts

4. Customers and Suppliers

Input your customer and supplier information to manage invoices and bills effectively. You can add/remove customers and suppliers at any stage.

5. VAT

Set up your VAT rates and codes as necessary. If you aren’t VAT registered, you can let Xero know at this stage, and you can change to being VAT registered if this happens down the line.

Xero Tips and Tricks: How to Use Tracking Categories

Tracking categories are a game-changer when it comes to analysing the performance of different aspects of your business. Xero allows up to two tracking categories, which means that each transaction can be assigned up to two different categories.

For example:

A theatre company might decide to use one tracking category for each project/show, and the other tracking category to monitor restricted pots of money. So, every time a new project starts, a category name is created for that project. Furthermore, every time a restricted grant is received, a tracking category name for that grant is created.

This way, every time income or expenditure is incurred for that project, the transaction is coded with the project’s code, and every time restricted money is received or spent, it can be tracked using the restricted fund’s category name.

Whether you want to track income streams, departments, or projects, follow these steps to make the most of tracking categories:

  • Define Your Categories: decide what you want to track, such as different product lines or geographic locations, or projects. 
  • Apply Tracking Categories: assign tracking categories to transactions, invoices, and bills for accurate tracking.
  • Run Reports: use the tracking category reports to gain insights into each category’s financial performance, helping you make informed decisions.

Here are some further resources for how to set up and use tracking categories on Xero.

Xero tracking category.          Xero tracking categories

The Most Helpful Reports on Xero

Xero offers a plethora of reports to gain a comprehensive understanding of your business’s financial health. Some essential reports include:

Profit and Loss Reports

They provide a summary of income and expenses, giving you a clear picture of your business’s profitability. You can run the total P&L report over a certain period, or you can see the income and expenditure by month.

Xero profit and loss by month

Balance Sheet

The Balance Sheet displays your company’s assets, liabilities, and equity, portraying your business’s financial position. It shows you how much debt you have left to pay out, how much cash you have available, and how many outstanding purchase invoiced you have left to pay. It also shows the current profit to date, and any other reserves and investments.

Xero Balance sheet

Budget Manager

This is one of my favourite tools: when you have a budget ready for your company’s financial year, you can pop it on the Budget Manager on Xero, so that you will be able to run the variance to budget report. You can create an overall organisations budget, and also departmental or project-by-project budget, so you can monitor performance on a more granular level.

Xero budget manager

Budget Variance

If you set up your budget in the Budget Manager tool, you can run profit and loss variance reports, that show how well your actual performance is doing against your budget, highlighting areas that need attention.

Xero budget variance report

Accounts Payables and Receivables

These reports are important for Credit Control: you can easily see how many sales invoices you are waiting payment on, and which purchase invoices you have yet to pay. 

Xero aged payables report

How to Use Hubdoc with Xero

Hubdoc is an excellent add-on to simplify your document collection and data entry. It provides a platform where you can load your purchase invoices and receipts, and code and publish them to Xero without having to post one invoice at a time as you would normally do if you were posting them directly on Xero.

Follow these steps to integrate Hubdoc with Xero:

  • Connect Accounts: link your Hubdoc and Xero accounts seamlessly. Click on the company name on Xero on the top left hand side of the screen, and click on “Hubdoc”. A page will open and ask you to link the two accounts.
  • Upload Documents: you can either drag and drop your invoices and receipts on Hubdoc, or send them to the Hubdoc email address listed in your Hubdoc settings. Hubdoc will scan the document and organise it picking up the main information such as Summpier name, date, amount, and VAT.
  • Review and Publish: review the extracted data, assign the appropriate coding, and publish the documents to Xero with just a few clicks.
  • Approve on Xero: the documents published on Hubdoc will come up as Draft Bills on Xero: ensure you double check them and approve them on the system.

How to use hubdoc on Xero


I absolutely love all of these Xero tips and tricks and use them regularly. Xero has an intuitive interface and the flexibility of its reports. Their website offers plenty of resources for business owners to learn how to optimise its use: you definitely don’t need to be an accountant to learn how to use it to meet your business needs. Don’t be scared of jumping it and playing around: you’ll realise that it’s much easier than you think, and your company’s financial health will be all the better for it.

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About the author : Susie Italiano

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