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How to set up Xero

How to set up Xero

How do I set up Xero accounting software for my business?

When setting up any accounting software, such as Xero, it’s absolutely imperative that it’s done right…

How to set up Xero


AT BEST…. you’ll have an accounting system that is inefficient – meaning you’ll waste time each week by spending more time than you should bookkeeping.

AT WORST…. you’ll have an accounting system that regularly makes errors, incorrectly processes transactions and produces reports/VAT returns which are quite clearly wrong.

Having reports you can’t rely upon will leave you in the dark when it comes to your finances because you just don’t know how much profit you’re making OR what the VAT bill is.

This is a terrible place to be as you’ll feel that you have an accounting system that is working against you, not for you.

The GOOD NEWS is that it doesn’t have to be this way IF you set up your Xero accounting system properly from the start.  



Step 1             PICK THE BEST START DATE

Picking the date to set up your Xero from makes a BIG difference as to how easy or how hard it is to set up Xero.

The BEST date is the date you started trading. BUT this should really be only used IF your business is about to or has just started trading.

The NEXT best is at the start of a new financial year as this provides a clear break from the previous financial year.

The THIRD best is at the start of a VAT quarter as this provides a clear break from the previous VAT return. The setup is a LOT easier if done at the start of a financial year BUT if this isn’t possible then this is going to be the best option.



This means that an extra step is added to the usual ‘user name & password’ login process. Having this in place gives you peace of mind that the data in your accounting system is safe and secure as it makes it virtually impossible for someone to hack in and steal your financial information.

ALERT: Make sure that EVERY Xero user has this.



This includes entering your address, your financial year end date and your VAT scheme details.

Inputting this important information will help Xero to produce correct sales invoices and accurate VAT returns which can be filed with HMRC.



By setting up all your business bank accounts in Xero means that you will be able to set up bank feeds.

We’ll cover off setting up bank feeds later in Step 8….BUT they are a BIG TIME SAVER as it means you don’t have to waste time any more manually inputting the bank transactions.

ALERT: You can set up bank feeds for deposit accounts and business credit cards too SO to maximize the time saving these should be set up too.



Xero provides you with a standard list of account codes (including sales, costs, assets, etc.) to which you can allocate your transactions to.

However, by adding or changing the ‘standard list’  you can get the information you need to run your business.

ALERT: We believe a business should have a different account code for EVERY marketing pillar they have….whereas the standard list has just one code for marketing.

By having a separate code means it’s a lot easier for you to work out if each marketing pillar is really performing for you…and that’s because it’s clear to see how much is being spent on it.



Every one of Xero’s standard list of account codes has a VAT setting – this is set to ‘No VAT’.

IF your business is NOT yet VAT registered this is perfect – nothing needs to change.

IF your business IS VAT registered then the ‘No VAT’ setting for at least the income and cost account codes to the appropriate VAT setting for that account code (eg  20% VAT on income for sales codes).

Making this change will save time and reduce the likelihood of VAT errors been made.



The conversion balances are simply the balances in your accounts on the day you start processing transactions from in Xero.

Without entering these none of the Balance Sheet balances (including the bank accounts, list of sales outstanding sales invoices, etc ) in Xero will be right.


Step 8             SET UP BANK FEEDS

As mentioned earlier setting up bank feeds means that every day Xero will download all the bank transactions that have not previously been downloaded.

This download function avoids hours of time being wasted by your bookkeeper manually inputting those transactions into the accounting system.


Step 9             SET UP BANK RULES

Bank rules are another big bookkeeping time saver because by using them you are teaching Xero how to automatically allocate an account code (& VAT code) when it sees certain bank transactions.

Bank rules work best for bank transactions where there isn’t an invoice eg wages, tax payments, etc.



Xero comes with a standard sales invoice template so that you can raise and send out sales invoices.

So that they look the part add things such as your logo AND your bank details so customers can pay via BACS.

ALERT: If you want to email sales invoices directly from Xero then make sure the customer’s email address is input when you set each customer up as a contact.


Step 11           SET UP PURCHASE INVOICE SOFTWARE (e.g. Hubdoc or Dext)

Hubdoc means you can snap your purchase invoices & receipts on the go with your phone. With a click of a button the image is then transferred into the Hubdoc software. From there the bookkeeper can login online and, due to integration it has with Xero, and can easily process the purchase invoices out of Hubdoc and into Xero.

The nature of the software means that a pdf copy of every purchase invoice is saved in both Hubdoc and Xero….meaning you don’t need to keep the paper copy any more.

Using Hubdoc saves time bookkeeping (again no more manual input) and should mean there is less chance of unnecessarily paying tax simply because you’ve lost the purchase invoice.

ALERT: Since Hubdoc is part of Xero it comes free. In comparison Dext is the better and more sophisticated software (which will benefit some businesses) for which there is a monthly subscription.


Step 12        SET UP DIRECT DEBIT INTEGRATION (e.g. GoCardless)

GoCardless is software that allows businesses to automatically get their sales invoices paid via direct debit.

ALERT: GoCardless can be integrated with Xero so that once set up sales invoices raised in Xero payment is then automatically requested on the due date on the invoice. All being well the cash will be in your bank account a few days later.

This set up improves cashflow, eliminates the time chasing payment and removes the end of each month stress as business owners worry if enough sales invoices will be paid in order for them to pay the wages.


Step 12.5       SIGN UP FOR MTD (for VAT registered businesses)

If you’re VAT registered you need to remember to sign up for MTD with HMRC.

Once done, this not only means you’re now complying with HMRC regulations BUT this also means you can now file your VAT returns at the click of a button through Xero, with no manual input needed.


If you’d like to find out more about Xero and it’s features click here…


If you’d like a chat over a coffee to see what’s possible give us a call on 0161 410 0020 or drop us an email to

It is important that you take professional advice before making any decisions based on the information that you learnt here. While every effort has been made to make sure it is accurate it cannot be precisely tailored to your personal circumstances. This article is for general information only and no action should be taken, or refrained from, as a result of this information.  Professional advice should be taken based on specific circumstances in each individual case.  Whilst we endeavour to ensure that the information contained in the article is correct, no liability will be accepted by Krystal Clear Accounting which is a trading name of Kim Marlor Associates Ltd or damages of any kind arising from the contents of this communication, or for any action, inaction or decision taken as a result of using any such information.

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