November 26, 2014

Small Biz Accounting Software Space Heats Up As Xero Raises $150 Million

Zero accounting software raises $150 million

It’s getting more crowded in the market for small business accounting software. Competition is heating up and is going to get even hotter now that Xero has raised another $150 million (USD).

The company announced the funding in a statement on its website today.  Most of the funding  came from U.S. investors, including Matrix Partners and Valar Ventures.

Added to the $67 million Xero previously raised, it brings the total to over $200 million raised.

Xero, whose tagline is “beautiful accounting software,” was founded in 2006 in New Zealand.  Xero’s offering is cloud-based, and it also has Android and iPhone/iPad apps.  Two years ago it entered the U.S. market.  Today it has offices in New Zealand, Australia, the United Kingdom and the United States.

According to co-founder and CEO Rod Drury, the most recent round of funding will be used to grow its presence in the U.S. market.  He mentioned specifically the 29 million small businesses in the United States and said in a video statement, “We are very determined – we are going to be the global leader in the space.”

A Rapidly Evolving Accounting Software Space

The small business accounting software space is changing fast.  Many small businesses and their accountants are still using “box software” although the transition to online software-as-a-service for accounting has accelerated. Large players like Intuit and Sage have millions of customers worldwide using their products.

The space has also gotten more crowded, with competitors that don’t necessarily look like traditional accounting software companies.  One example is GoDaddy, which bought the Outright bookkeeping software and Ronin invoicing app, turning them into GoDaddy Bookkeeping.  Another is PayPal, which when combined with Square and bank records, is used by some entrepreneurs as a quasi-substitute for keeping track of finances.

On top of those options are dozens of scrappy startups and small invoicing and billing companies, such as Freshbooks.  We counted 50 invoicing apps not long ago. While they may not  provide a full double-entry accounting system, some offer enough bookkeeping-related functionality to meet the needs of the smallest small businesses and solo entrepreneurs — especially when coupled with downloadable bank and credit card records.  Freshbooks says it has 5 million people using it, and now even calls itself  “cloud accounting.” (See our recent review of Freshbooks.)

Xero still has a fairly small footprint in the United States, but is growing fast.  According to Xero’s annual report, the company had 157,000 paying customers as of March 31, 2013.  Its annual revenue was reported at $51.5 million and most of that is from customers in New Zealand and Australia.  Only 8% is from “US and Rest of the World.”  However, the company more than doubled its  revenue since 2012.  It now has almost 600 employees.

Image: Xero announcement video still

17 Comments ▼

Anita Campbell - CEO


Anita Campbell Anita Campbell is the Founder and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses, and also serves as CEO of TweakYourBiz.com.

17 Reactions

  1. Hi Anita,
    At first glance the accounting industry wouldn’t seem to be the sexiest of markets and it’s easy to ask yourself how many accounting programs small businesses could possibly need. Then again, I’m guessing ease of operation and just personal preference for certain features and just how each software platform is laid out are all differentiating factors. It’s nice to keep track of all the choices out there.

    • You have said it yourself. Accounting is not sexy. And this is the reason why many companies would rather have some software do it than do their accounting by themselves. This works because it fills up a need. It is a need that almost every business has and that’s why it became successful.

  2. Hi Anita,

    I wrote the Xero for Dummies series of books. One of the most exciting aspects of Xero is the eco-system that is building up around it, which is eliminating the need for data entry and enabling data mining, in a timely and flexible fashion.

    You can set up your franchise businesses on Xero, and connect them to Debtor Daddy, and have outstanding invoices chased automatically. Connect them to Deputy App, and have a comprehensive rostering and payroll solution. Connect them to FathomHQ which will undertake a comparative analysis of all businesses, and highlight businesses not achieving benchmarks and KPI’s.

    This is powerful.

    Anita, one thing that surprises me about the US is the reliance you have on ‘checks’. As a business owner I rarely use or see a ‘check’ I consider them to be such a time consuming burden. Do you see the US moving towards electronic transfers, and really reducing administrative burden in the back-office?

    Thanks again for the article. My book Xero for Dummies was selling in Barnes & Noble in Manhatten – so I am thrilled to see this news.

    Cheers

    Heather

    • Hi Heather, thanks for that good insight. You’re not the first I’ve heard from who is a devoted fan of Xero. :)

      Well, electronic transfers are growing first here in the States. PayPal has become mainstream, but an even more important development recently has been the larger banks like Chase that have come out with innovative electronic funding options. Too many banks have been laggards and make EFT prohibitively expensive and complicated for small businesses. It’s one reason I left my regional bank because the electronic payment options were too limited. We have lots of smaller banks here in the United States, but most don’t have the resources to invest in technology.

      – Anita

      • Anita, Thank-you for your insights. Here in Australia ‘cheques’ (our spelling) cost $2.5 so for us they are the prohibitive expense. I think banks need to make these administrative processes easier for businesses – its so simple but will have a massive impact on productivity.

        Here I am pushing for banks to provide more details in their bank feeds! One day we shall see it!

        Cheers

        Heather Smith
        Author: Xero for Dummies

  3. Two of my favorite online accounting sites are Freshbooks and Mint. I’m not sure if Mint can be counted as an accounting site as it’s more of a personal finance site but you do need to keep track of those finances as well.

    • Hi Mike,

      Thanks for your input. Freshbooks definitely has devoted supporters, also. For very small businesses that handle all their funds through invoices, banks and credit cards — it seems to be sufficient. For businesses that handle a lot of cash or do many small retail sales, and for bigger small businesses that have more complexity including payroll to contend with, it’s not a good fit. That’s one of the things I like about some of these newer entrants – they are not trying to be all things to all businesses. They find their sweet spot and fit in.

      Mint is definitely a personal finance tool – I don’t consider it sufficient for anything other than solo entrepreneurs whose business monies are essentially one and the same with their personal monies.

      – Anita

  4. $150 million? Wow!

    I welcome the competition because it will lead to better products at lower prices. Keep the reviews coming to help SMBs sort through the clutter :)

  5. Quickbooks is the main tool at our office for business accounting. It may not be stable but that software works well. No hiccups, no issues. I personally would find it difficult to break away from a solid program like Quickbooks and risk my business with something new.

  6. As an owner of a business that is centered around Xero, I can go on for hours about this topic. All the points covered above are valid and true.

    I switched delivering accounting services from Intuit products (and others) to Xero-only because of many reasons:

    -provides better experience for my clients,
    -a better experience for me,
    -the add-ons (the eco-system talked about above),
    -and the expense/return on investment for the clients.

    Xero is new to the states, and commend all the new users for being very brave for jumping on a system they hadn’t heard about only perhaps a year or two ago (but has been around quite a while). But they are amply rewarded with their experience they have with it.

    Xero is at the forefront of a new age of handling money, accounting, and banking. We ALL have to deal with these things in one way or another, and this new technology is easing the pain significantly.

  7. Xero is the quickest growing accounting software and its no reason why. Its cloud base system with easy add-on apps makes it convenient, accessible, secure and add to this it is super user-friendly. Wouldn’t be surprised when it reaches a billion.

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