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Xero Analytics Gets You Closer To Your Business Finances

By November 2022December 7th, 2022No Comments
Xero Analytics Gets You Closer To Your Company's Financial Health

There’s a dashboard under the ‘Business’ menu in Xero that you may have overlooked, but that I think you should take a look at. In this blog, I explore the paid version of Xero Analytics, which features an excellent short-term cash flow forecast. I’ve also included a short video walkthrough that you can see if you scroll down.

What is Xero Analytics?

In your main Xero menu, the second menu item is called ‘Business’ (it’s where you go to create invoices and expense claims). Right at the top of this menu is an area called Analytics with two sub-items, Short-term cash flow and Business snapshot.

The Business snapshot is meant to give a visual representation of your business finances, including a comparison with the previous financial year. Do take a look, as you may find some of the elements useful. However, as I mention below, I don’t think much of it and the area I want to explore with you here is the sort-term cash flow projection. Having cash flow forecasting natively within Xero is a game-changer for small companies, and I’m really pleased it’s finally here!

What’s good about Xero Analytics?

I don’t think there’s much to recommend the free Xero Analytics features, so I am going to be looking at the Analytics Plus features. For example, free Analytics has a 7- or 30-day forecast, but in Analytics Plus you can also have 60 or 90 days. That’s a much more useful window for a business. Also, you can run your projections for all your bank accounts, or just one bank account.

With Analytics Plus, you can manually add bills or invoices to adjust your forecasts, whereas free Analytics will only work with the data you already have in Xero. In my experience, it’s not enough to only have Xero data, as it doesn’t allow you to include data that Xero couldn’t have yet (let’s say you have the intention of drawing down a loan, or you know there’s a VAT payment coming up, for example). There are things you will know about in advance, that you want to see reflected in your projections, but that Xero doesn’t have data for yet.

Analytics Plus uses Xero’s AI predictions, so if you have recurring payments or receipts, it should predict that they will happen again and factor them in. You’ll be able to see which transactions are predicted, which are manual, and which ones come from bills/invoices and be able to edit all three. This means you should end up with a cash flow projection that is pretty accurate.

While you can create decent cash flow forecasts in a spreadsheet, they tend to be out of date almost as soon as you’ve created them. You would have to spend time every day updating the information with new invoices, bills, and bank transactions. Xero Analytics, however, is accurate in real time. I would recommend Analytics Plus for its short-term cash flow forecasting if you are a business with up to €500,000 in turnover or 3-4 staff members.

I wouldn’t recommend this feature for larger companies. One of the reasons is that forecasting requires an estimated date at which you’ll get paid for each invoice. That’s easy enough if you have maybe 10 invoices a week. But if you have a hundred, or a thousand, it’s unrealistic to think you’ll go in and predict when each one will be remitted. Cash flow forecasting at this scale is unwieldy, to say the least.

That’s why larger companies don’t do short-term projections in this way. Instead, they ensure they have sufficient cash reserves for the coming period (3 months or more is a healthy level) and they set cash flow targets for the year that they monitor month to month. For smaller companies, as I’ve said, the Xero Analytics Plus is perfect.

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Clients are always asking what they should use for forecasting, and we’ve worked with quite a few different solutions over the years. None of them have become our natural go-to for forecasting, as they all have some kind of issue – being unwieldy or taking a steep learning curve or having troublesome connections with Xero. They just don’t give the small business owner a nice, simple way to achieve cash flow forecasting. Also, because they are an external product, you lose that streamlined, everything-in-one-place element that I feel is so key to good digitalisation. That’s why I’m really glad to see that Xero has nailed this right there inside their core product.

What’s not good about Xero Analytics?

As I’ve said, the free version of the cash flow projections isn’t particularly good. Also, the Business snapshot – even in Analytics Plus – is of very limited use. Even though you can edit the dashboard, my feeling is that if Xero has created this because the main Xero dashboard isn’t up to scratch, why don’t they simply make that better instead of adding this other dashboard somewhere else? I predict that these visualisations are experimental, and we will see them integrated into the relevant reports as Xero continues to evolve that area of their solution.

How does Xero Analytics work with Xero?

Analytics is a native feature, so it’s right there in your main ‘Business’ menu. There is a paid and free version, and I’m recommending you opt for the paid version.

Are there other integrations for Xero Analytics?

Analytics uses your Xero data and manual inputs to produce in-Xero reporting, so there’s no need to integrate with external tools.

How much does Xero Analytics cost?

Xero Analytics is available in your current plan, accessible under the ‘Business’ menu. But, as I’ve explained, I really don’t think the free version is worth using, so you will need to upgrade to Analytics Plus. There isn’t a free trial period of Analytics Plus.

However, at a flat rate of $7 per month (not per user per month as with Xero Expenses, for example), I think it’s very good value. With just a couple of clicks, it will be automatically added to your existing monthly subscription fee. Why not try it for a month and see what you think?

To add Analytics Plus to your plan in Xero, go to your short-term cash flow projection and click the blue “Get Analytics Plus” button in the top right. Or go to your Business snapshot and click the blue “Upgrade to Analytics Plus” button in the top right.

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Rory