Xero: Taking Aim At The Intuit Goliath

Tom Taulli for Forbes writes: When it comes to small business accounting software, Intuit INTU -2.77%’s QuickBooks is the king, at least in the US market. Many have tried to unseat the company but to no avail.

Yet now QuickBooks may finally have a real challenger – Xero. Launched in New Zealand during 2006, the company focused on leveraging next-generation technologies like cloud computing as well as consumer-driven UI approaches.

And yes, this has turned out to be a winning strategy.  In fact, Xero even caught the attention of super investor Peter Thiel, who has participated in four rounds of financing.

So to learn more about the company, I recently talked to the CEO of the US business, Jamie Sutherland.

Here’s what he had to say:

Tom Taulli: How does Xero help with small businesses? What about your mobile apps?

Jamie Sutherland: Xero is beautiful online accounting software, built for the web from the ground up and tailored to meet the financial needs of small businesses in an easy-to-use, intuitive way. Small businesses (SMBs) use Xero to address a variety of business needs from payroll to invoicing, and from bank reconciliation to reporting, all of which are designed to provide full financial visibility to SMBs and their accounting counterparts.

Xero customers are able to access their financials from anywhere and at anytime on any device, which in turn, helps them make more accurate financial decisions about their business. With our native iPhone and Android mobile app, Xero Touch, SMBs can review their accounts, create and send invoices, chase up outstanding invoices, snap a picture of receipts, submit expense claims and more.

Taulli:  You recently put together a survey from your accountant base.  Main takeaways?

Sutherland: Our survey was conducted at our inaugural U.S. accounting event, Xerocon and subsequent cross-country roadshow. The main findings from the survey revealed that today’s accountants are mobile, adventuresome and technologically savvy via the cloud.

Additionally, the recent survey uncovered that the most common mistake small businesses make is not having real-insight into their financials (47%) and the public policy that has most small businesses worried is the Marketplace Fairness Act (77%) – internet sales tax.

Taulli: You are taking on a giant, Intuit’s QuickBooks. What has this been like? What are your advantages?

Sutherland: Intuit’s QuickBooks was not built for the cloud. Therefore it has had a lot of trouble with the transition (in the form of frequent outages and blackout times). Xero on the other hand has had a 99.999% percent uptime rate. This is the big advantage of Xero. Also, given that we were born in the cloud, we are able to iterate on the platform so much faster and implement changes that our community needs and wants at a much higher rate than a legacy player.

We are in an era where web services and contemporary APIs allow for collaboration. From day one Xero has had an open API so we can work with developers to grow an ecosystem of add-on partners that truly meet the needs of all small businesses. Currently we have 300 add-on partners and serve over 211,000 paying customers in more than 100 countries.

Intuit: Double Customer Base in Five Years

Bob Scott for the Progressive Accountant writes: Intuit wants to double the number of customers and substantially increase the number of tax filers by 2018. That was a goal outlined this week by the tax and accounting software company during its annual shareholder meeting. CEO Brad Smith also talked about reaching a point where data entry in preparing tax returns is automatic.

Intuit wants to go from serving 5 million customers to 10 million from 2013 through 2018. It wants to increase the number of those who file their taxes by utilizing Intuit products to increase from 64 million to 84 million at the same time, a 31-percent increase.

"We have to continue to invest in acquiring new users," said Smith. A key to achieving that is to make tax software "drop-dead simple."

The goal of having no data entry for taxes is one he says would benefit accounting professionals. That would help CPAs and other professionals by eliminating the need for them to spend time entering data and enabling them to concentrate on more valuable services.

"CPAs spend 60 percent of their time keying in information that could have been imported," Smith said.

He also discussed the perceived need of getting cloud products into the hands of paid preparers. But Smith not discuss plans for specific tax products, only issues and the general direction of the market.

However, he did single out QuickBooks Online, which the company believes has been significantly improved with the most recent release. Smith said setup time has been reduced dramatically and he said the product is starting to win over accounting professionals, who have had a dim view of the cloud-based product.

H&R Block Tackles Health-Care Opportunity

SPENCER JAKAB for the wall st journal writes: It is said that the only two certainties in life are death and taxes. A third might be that someone will try to make a buck off the first two.

After all, the Grim Reaper doesn't show up absent some illness or injury, while Uncle Sam requires lots of paperwork to assess his take. Both usually involve professional assistance. And the Affordable Care Act means the $2.8 trillion health-care and $19 billion tax-preparation industries just got much more complicated.

Having faced uncertainty, health insurers and hospitals looked like winners in the overhaul. But tax preparers such as H&R Block HRB -3.17% could be surprise beneficiaries of the law's heretofore messy implementation.

The law penalizes those who don't buy insurance while subsidizing about 80% of those enrolling on new exchanges. For insurers, this outweighed negatives such as strict control of medical-loss ratios that effectively cap profit along with the need to accept applicants without regard to risk.

From the bill's signing in March 2010 to last October's chaotic launch of enrollment, shares of Humana, HUM -0.20% UnitedHealth UNH -2.19% and Aetna AET -1.49%returned 108% on average—nearly double the increase in the S&P 500.

Hospitals could cheer, too, albeit with some concerns. They typically lose money on both uninsured patients and those covered by Medicaid but make up for it with privately insured patients. The new mix of insured patients was mildly positive for firms such as HCA Holdings HCA -2.79% and Tenet Healthcare. THC -2.52%

But the reality of the ACA may be less friendly to both industries. For one, those buying insurance on exchanges through the end of 2013 were sicklier than anticipated, with only 24% under age 35 versus expectations of 40%.

And there were only 2.1 million completed applications, compared with a projected 3.3 million and a goal of 7 million by March 31, when enrollment ends. Plus, late policy reversals allowed employers to delay offering private insurance in lieu of penalties and let owners of some non-qualifying individual plans keep their policies.

Those factors mean insurers likely charged too little initially. Meanwhile, hospitals may not see the higher profitability they expected.

But the bungled rollout and the law's complex individual tax implications could benefit H&R Block whether or not enrollment meets the administration's target. If nothing else, the law may expand America's top tax preparer's customer base, and help the company earn more from its existing ones.

H&R Block already has a pilot program to help people buy insurance. Starting next tax season, penalties for lacking coverage kick in. Even for those with coverage, H&R Block plans to offer guidance and use the refunds it typically applies to high-fee debit cards as a payment option. More people must now file returns and its role as middleman for insurers and insured could be lucrative.

One challenge is that health-care enrollment generally occurs in the fall while the tax season is in the spring. H&R Block employs just a fraction of its peak staff then. But it is confident that tools such as its "Helpth" website can process customers efficiently and steer new ones to its bread-and-butter tax prep.

Wall Street seems to agree. Since enrollment began, forecasts for H&R Block's 2015 earnings per share are up 10.6%. They fell by 2.9% on average for four big insurers and by 4.7% for four big hospital chains.

H&R Block's opportunity is hard to quantify but analysts have barely begun factoring in health-care-related revenue. So those revisions may not yet capture the true benefit. Meanwhile, industries anticipating the spoils of the ACA may see them flow elsewhere. So much for a sure thing.

How Long Should I Keep Financial and Tax Records?

David John Marotta & Meagan Russel for Forbes write:  If you haven’t been traumatized by an IRS audit, you probably don’t keep much financial documentation. If you have, you are probably terrified to part with a single receipt.

The IRS is one of the few courts where failure to produce proof of your claims results in the assumption that you are guilty of tax fraud. Thus you must save all the financial documents you used to create your taxes to defend yourself in an audit.

First, retain a paper copy or receipt of any tax-relevant financial exchange. Scan these documents and archive them electronically, or acquire them in an electronic format. If the purchase has a manual or warranty, store all the documents in the same electronic and physical location.

Sadly, the IRS has ruled bank or credit card records to be insufficient documentation. As a result, just keep your statements long enough to reconcile your account.
If the purchase was a business or tax-deductible expense, record the expense and why it justifies the deduction. Store this information with or on the receipts.

Second, keep brokerage statements indefinitely for taxable accounts. You are responsible for reporting the cost basis of any security you sell to calculate the capital gains tax. For a mutual fund with 30 years of reinvested dividends, each dividend payment is part of the cost basis. As a result, the cost basis can sometimes be computed only if you have the complete transaction history.

Without knowing the cost basis, the IRS could argue that the entire value of the investment be treated as gain.

If you have lost the record of how much you originally paid for an investment, instead of selling and paying 15% or more of the value in taxes, you can use that investment as part of your charitable giving. Gifting appreciated stock avoids the tax owed and still qualifies for a full deduction. Oddly enough, the IRS still asks for the original purchase date and price for gifted securities, but leaving these blank has no effect on your tax owed.

Many custodians keep several years of electronic copies of brokerage statements available. And they are now required to send any known cost basis electronically when you transfer securities to a new custodian. If your current custodian has the correct cost basis of your securities, you probably no longer need to keep brokerage statements. However, better safe than sorry is always advisable with the IRS.

Third, keep IRA nondeductible contribution records forever. You may need those records every year that you withdraw money in retirement to show that a portion of the withdrawal is not tax deductible.

Or to avoid the hassle, clear out nondeductible IRA contributions by converting all of your IRA accounts to Roth accounts.

Fourth, keep partnership documents, contracts, commission or royalty structures forever. This includes property records, deeds and titles, especially those relating to intellectual property. It also includes any transfers of value for estate planning purposes.
Finally, save all of your tax returns. After you file, save the paper and/or electronic copies with the rest of that year’s financial documents.

Once a year, we scan and compile all the records that support our tax returns into PDF documents and send them electronically to the certified public accountant who does our taxes. Having the information scanned gives us an electronic backup of the paper records that we still retain. Storing financial records electronically is one of the only ways keeping them indefinitely seems realistic.

Tax returns and all the supporting documentation must be kept at least seven years. The IRS can audit your return for up to three years from your filing date. However, the three-year limit only applies to good-faith errors.
If the IRS suspects you underreported your gross income by 25% or more, they have up to six years to challenge your return. And because you may file for an extension at the October 15 deadline, you must keep your records for at least seven years.
Regardless of those rules, though, if the IRS suspects you filed a fraudulent return, no statute of limitations applies. Because the IRS has been proven to be malicious, we suggest keeping your tax returns and documents forever.

If you are unfamiliar with the federal tax courts, the interpretation of the law is anything but clear. Consensus grows gradually as practitioners interpret legal and accounting opinions and then wait to see if the IRS notices and subsequently chooses to challenge them. Then they have to wait for a taxpayer willing to go to court to see which interpretation wins.
It is unreasonable to tell people to settle for the most conservative government-always-wins interpretation. Collectively, trillions of dollars are at stake for individual taxpayers, especially small business owners. The annual differences between interpretations are in the hundreds of thousands of dollars.

Unfortunately, whenever the IRS challenges you, the burden of producing evidence that your claims are true rests entirely with you, so you better have your documentation in order.
Taxpayers collectively spend six billion hours or 8,758 lifetimes annually trying to comply with the tax code. That is, IRS legislation kills the equivalent of 8,758 newborns each year. Such an enormous waste of life is completely unnecessary. Were any private companies responsible for such abuse, we would make laws preventing it.

We could easily abolish the Fourteenth Amendment and replace the federal income tax with a tax on consumption or a poll tax. As an added bonus, in a world without the income tax, you would not be obligated to report your private financial matters to the government each year.

Tax incentives for organ donations / I’m going to donate a kidney to charity. Can I claim a charitable deduction?

Business Management Daily writes: Question. I’m going to donate a kidney to charity. Can I claim a charitable deduction? Anonymous

Answer. No. Currently, the federal government doesn’t offer any tax deduction or credit for donating organs such as kidneys to charity. However, some states offer tax incentives for making organ donations, including Arkansas, Georgia, Idaho, Iowa, Louisiana, Maryland, Massachusetts, Minnesota, Mississippi, New Mexico, North Dakota, Ohio, Oklahoma, South Carolina, Utah, Virginia and Wisconsin. Typically, the deduction tops out at $10,000. At the national average state income tax rate of 6.5%, this can amount to a $650 savings.

Tip: The expenses incurred in making the donation are eligible for the medical deduction subject to the usual limits.

Six of Britain's Best Financial Technology Businesses : Borro / DueDil.com / FreeAgent / FundingCircle / GoCardless / Wonga

David Prosser for Forbes writes: Britain’s financial technology sector is booming, accounting for a third of the total global investment in the industry according to Silicon Valley Bank. That’s second only to the US, and while other European Union countries also have their success stories, put together, they’re attracting just a tenth of the finance flowing into British firms.

That dominance is reflected in the FinTech50, a new listing of Europe’s most exciting financial technology businesses, where more than half the constituents are UK companies. Here’s just six of the best that Britain has to offer.

Borro

The credit crunch prompted a wholesale withdrawal from the small business lending market by Britain’s big banks – six years later they are only just beginning to think about returning. A wide range of alternative lenders have stepped into the breach, but Borro is unique in its particular niche of the market.

The online lender offers loans of up to £1m to individuals and business owners, with the advances secured against borrowers’ personal assets – anything from fine art to a vintage wine collection. An in-house valuation team runs the slide rule over the assets and offers a very quick lending decision.

DueDil.com

How can businesses proceed with confidence when they first have dealings with private companies about which little is publicly known? The large credit reference agencies are geared up to provide data on large companies, but offer a very narrow set of analytics. DueDil.com, however, promises much more – and can provide intelligence on a much larger number of businesses.

Within the past year, the company has got its funding round away, developed technology that provides access to data from 20 different European countries and signed up more than 150,000 customers. Not a bad start.

FreeAgent

Freelancers and micro-businesses don’t always have the time or the expertise to stay on top of their accounting, but their affairs aren’t complicated enough to justify the expensive fees charged by traditional accountants. FreeAgent squares that circle with a cloud-based accounting service that has already attracted more than 34,000 subscribers.

The business is just five years old but has been able to roll out a series of new services very rapidly thanks to a software-as-a-service model that gives online users access to sophisticated tools as and when they need them, rather than requiring customers to make sizeable upfront investments.

FundingCircle

FundingCircle wasn’t the first venture in Britain to offer small businesses access to loans through a crowdfunding platform, but it has come to dominate the market. So far investors on the site have lent more than £200m to small businesses that might otherwise have been unable to access credit.

Last year, the business announced a venture in the US, which promises to supercharge its already impressive growth. And while it was initially dismissed by the banks as irrelevant and unthreatening, insiders say a tie up with one of the UK’s big high-street names is now imminent.

GoCardless

The UK’s direct debit scheme enables customers to pay organisations automatically and electronically – it’s convenient and secure. Unfortunately, the system has been less than accessible to smaller businesses, leaving them to rely on more expensive payment methods.

Enter GoCardless, which launched just two years ago with a new technology solution that has enabled thousands of merchants to bill their customers by direct debit for the first time. Within a year, the start-up business had become the UK’s largest direct debit provider – next months it’s launching into continental Europe.

Wonga

Love it or hate it (and there are plenty in Britain, including some influential policymakers, who fall into the latter camp), Wonga has made more of an impact than any other new entrant to the financial services industry in living memory. The payday lender has developed a sophisticated algorithm that enables it to offer instant decisions on online applications for short-term loans – and where it says yes, it’s also able to deposit the cash in borrowers’ accounts immediately.

Wonga has already lent hundreds of millions of pounds to individuals and is now beginning to make inroads into the small business market. It’s hotly tipped to launch an IPO sooner rather than later.