Want to make sure your Xero account is set up right? You need a Xero Health Check!

Read on to learn more about conducting a Xero Health Check.

Bookkeeping can easily feel like a chore, one that is simply too hard.

It’s like taking the car to the garage for a check-up: we prefer to put it off until it’s too late!

Not to worry, we’re here to help.

stress in bookkeeping

 

Internal check-ups of your bookkeeping are a great way to avoid errors in reports, inaccurate information, and to ensure your bookkeeping stays as simple and efficient as possible.

It’s about keeping you operating at your best.

Xero accounting software is a great tool for keeping your accurate accounting records, but only if it’s set up right.

 

Setting up Xero right from the beginning

Wayne Richard, Client Success Manager at Bean Ninjas, highlights four key areas that small business owners need to get right, to maximize the benefits offered by their Xero account:

  1. Chart of Accounts: this is the list of all the accounts  your organisation has available to record transactions in Xero, eg. sales revenue, labour costs. It’s important to take care with this area to ensure that your reports are sufficiently specific and that it’s easy to enter new data into Xero.
  2. Conversion Balances: these are your closing balances for the day prior to you opening your Xero account. Accordingly, they form the opening balances you commence your Xero use with. These are very important, because they have a flow-on effect on all subsequently recorded transactions on Xero. If these are incorrect, then the balances going forward will also be incorrect.
  3. PayPal/Stripe: these platforms add professionalism to the invoice-sending process, but it is easy for these to be set up poorly. An error with these can mean that payments don’t process or invoices may be sent twice, etc.  
  4. Bank Rules: if set up well, these automatically suggest the coding of your next transaction, allowing you to reconcile transactions easily. Essentially what you do is set up Xero to expect certain transactions from specific suppliers. If you aren’t careful, however, Xero may code in expected transactions even if they didn’t occur, creating an absolute mess!

To assist you in setting up Xero correctly check out Xero’s help section: it effectively breaks down information into small chunks which make sense to help you on your Xero journey.

Related: 8 things most people forget with their Xero setup

Now, let’s talk about why it’s important to do a regular health check on our Xero file.

Learn why it’s important to do a regular health check on your #Xero file. Click To Tweet

The Xero Health Check

A Xero Health Check involves conducting an analysis of your Xero account setup.

These Health Checks are conducted by Xero professionals who will, once given access to your Xero account, look out for some of the following:

  • Xero settings
  • Xero setup
  • Bank feed inaccuracies
  • Inventory
  • Currencies
  • GST coding mistakes
  • Manual journals
  • Reports
  • Expense claims
  • In addition to many other areas

Related: 5 Lesser-Known Xero Features

Why do a Xero Health Check?

Meryl Johnston, founder of Bean Ninjas, suggests that the key time you may need a Health Check is if you’re new to Xero and have just set up your file. The Health Check can help you make sure the initial settings are all as they should be.

If you get your initial settings wrong, this can lead to inaccurate reporting.

Inaccurate numbers don’t make for making sound business decisions, or accurate data for reporting or tax purposes.

tax purposes

 

Rather than waiting until something goes wrong, it’s far better to be proactive and identify and resolve issues sooner rather than later. The longer a problem exists the more expensive it can become to fix.

Now, even if you are more of an old hand with Xero, the Health Check is still absolutely for you!  As Meryl says, it’s about getting another pair of eyes to look over your work.

Even the best operators can make mistakes; having a trained professional look over your books can reduce the chance of this occurring. Ensuring errors are rectified before they become problems  

 

The Benefits of a Xero Health Check

  • Ensure your accounts are accurate;
  • Identify errors, duplications and/or omissions;
  • Identify problem areas and rectify before other issues arise;
  • Identify a need for training to ensure errors aren’t repeated;
  • Ensure any additions or changes (i.e additional accounts) since setup or your last Health Check have been implemented correctly.
  • Peace of mind!

The benefits of a Xero Health Check are clear, but how often should you do one?  

To get the most benefit from a Health Check, like any health check, they are best scheduled regularly as a shorter timeframe allows you to catch problems as they arise. If your business is in a growth phase or is highly transactional, we recommend timing your Health Check with your dentist visits: every six months!  

For smaller businesses with lower transaction volume or businesses that are experiencing stable growth periods, you could carry out checks every 12 months.

An internal audit can help you identify any potential problem areas and take preventative action. Click To Tweet

How to DIY Your Xero Health Check

If you prefer not to hire someone to do your Xero Health Check for you, you have the option of conducting your own health check. If this is what you prefer, there are a few key things to look out for:

  • Ensure that you’re using either the cash or accrual method of accounting.  Cash accounting is when transactions are recorded when funds are received, whereas accrual accounting is where the transaction is recorded on the day the sale was made, regardless of when you receive the cash. Either option can be suitable for your business, but it is critical to choose one and stick to it.
  • Ensure all bank reconciliations are accurate.  the bank reconciliation process is where you check your records against the bank’s records, ideally you pick up missing or duplicated transactions. Hence, this is meant to be a step where you pick up any issues. However, that also means that if your reconciliations are faulty, there’s nothing to catch those potential issues with the transactions. The Reconciliation Report in Xero can look over this for you, and is easy to use.
  • Ensure all unpaid invoices have been followed up.  It can be easy to assume invoices have been paid, or to put off chasing up on them, and that is why it’s so important to specifically look out for them during a Health Check.
  • Check the settings on your payment options.  Platforms like Stripe and PayPal,  ensure you get paid, so it’s worth taking a little time to make sure everything is as it should be. Related article: https://beanninjas.com/blog/avoid-stripe-and-xero-headaches-step-by-step-guide/
  • Check your Chart of Accounts is properly detailed.  As well as setting up your Chart of Accounts correctly, it is important to maintain it on an ongoing basis. Carefully consider if each account is set up accurately and in the best way possible for recording and reporting purposes.
  • Ensure dates are locked for financial periods.  Duplicating transactions due to overlapping dates in financial periods could duplicate revenue or expenses! You could end up paying tax on a transaction twice! Xero conveniently offers a “lock dates” function which guarantees you won’t duplicate information.

Related: How To Stop Wasting Time With Bookkeeping

Why Hire A Professional?

professional bookkeeper

 

We’ve only scratched the surface of all the things that you need to be verifying when conducting a Xero Health Check.

When conducting Xero Health Checks for clients, Bean Ninjas performs a rigorous 100-point general file setup check to help ensure their Xero file is setup correctly.

We will check for:

  • Bank feed errors
  • Unreconciled transactions
  • Stripe transactions
  • Old invoices that should be written off
  • Inventory
  • Expense claims
  • Fixed assets
  • Reports
  • Manual journals
  • Currencies
  • Email settings, and more!   

Now if the whole process sounds difficult and complicated, and you’d rather focus your time and attention on more important things like sales, fulfilment, or spending more time with loved ones, consider hiring a professional to do it for you.

Professionals carry our Xero Health Checks regularly and for a variety of customers, so you can ensure they will carry out your Health Check quickly and accurately.

Given the numerous benefits a Health Check can offer, the safer, more efficient and cost-effective option is to hire someone to do this for you.

Related: 17 Benefits Of Hiring A Professional Bookkeeper

Get Started

So what are you waiting for? Get onto a Xero Health Check for your business straightaway.

Prefer to hire a professional to do the health check for you? Take a look at our Xero Health Check service.

 

Fiona Fenton

Fiona Fenton

Fiona has a background in cross-border institutional finance and law and now works as a project and operations manager for online businesses.

She has travelled to 31 countries and regularly visits her Tasmanian homeland. She is an avid surfer and yogi and spends her time between the Gold Coast, Australia and Argentina.
Fiona Fenton
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