Sunday, March 9, 2014

Xero and Intuit : Its more than just the numbers

Margaret Carey for Cloud Accounting Buzz writes:   The numbers make for interesting reading. On February 20th Intuit announced its second quarter results which showed that there are now 561,000 paying customers worldwide using QuickBooksOnline (QBO) cloud accounting software and that 45,000 of those were added in the last quarter. Meanwhile Xero has announced that globally it has 250,000 customers, approximately 100,000 or 40% of these are in Australia – the remainder mainly in New Zealand (its birthpace), US or UK. Xero also advised that it is adding 200-300 new customers a day which equates to around 78,000 a year. So Intuit is out[pacing Xero in both the total number of customers and the acquisition rate.
Chris Repetto Director of Corporate Communications at Intuit provided additional breakdown of QBO new customers – approximately 70% of these came from outside the world of Intuit – i.e. start-up businesses, businesses migrating from a shoe box/spreadsheet system, or migrating from another software product. The remaining 30% migrated from the QuickBooks desktop software. Further review of Intuit’s published figures indicate that around 90% of its customers are US-based and the remaining 10% mostly from Canada, UK, Australia and India. Extrapolating this out, it means that of the 45,000 new QBO customers last quarter some 28,000 of them were new US-based customers. So even excluding the customers converting from desktop – QBO is outpacing Xero in the US.
There is more to it than just numbers. Intuit has long been a dominant player in the small business accounting software world in the US and has both a high level of brand awareness and accountant participation giving it an edge over Xero there.
Xero arrived unknown to the shores of Australia some six years ago and using the disruptive marketing techniques for which it is now well known, caught the dominant Australian software company, MYOB off guard. MYOB was not ready to launch a major cloud offensive (although MYOB Live Accounts made a small splash) and Xero was able to effectively woo accountants by selling the benefits of a cloud solution with its collaboration and single ledger and take market share from MYOB.
Having refined these techniques in Australia, Xero was ready to make a move on the US market. However, this time the dominant player was not caught napping. Intuit quickly recognised the threat from Xero and virtually disrupted itself before Xero could do so. QBO had been on the US market for around 10 years before Xero came along  and as there were many similarities with the desktop product transition was relatively easy making it a possible option. However the user interface was cumbersome, inconsistent, disorganised and out dated. You had to be really committed to want to use it. Intuit quickly recognised these issues could be exploited by Xero and set about overhauling the interface and last October, released the new user interface which overnight transformed the product into being easy to use, vibrant and interesting.
So last quarter with the release of the new interface, about 13,500 existing Intuit customers who could well have migrated to Xero, instead migrated from QuickBooks desktop to the revitalised QBO and a further 31,500 new Intuit customers started to use QBO – validating the strategy. So whilst there is some robbing of Peter to pay Paul, it means that overall not only do existing customers stay with Intuit but it also confirms that Intuit can attract new customers at an increasing rate  . (Previous quarters the increase in QBO customers had been around 28,000 -29,000 per quarter) Just as an aside, there wasn’t a commensurate increase in QBO revenue in the last quarter – the increase was pretty much the same as previous quarters – maybe due to price discounting in a period when Xero generally increased its subscription costs
It doesn’t look as though Xero will make the same waves in the US as it has in Australia partly because Intuit met the challenge there much more quickly than MYOB did in Australia but also because of the size of the US market where there is a lot more scope for multiple players. Intuit is now firmly entrenched in Australia. I don’t know how the numbers of QBO users here compare with Xero’s 100,000 but it QBO certainly gaining traction here (partly at least due to extensive price discounting.) It will be interesting to see if Australia is ready for another round of disruption or if Intuit will use other techniques here where brand awareness and product familiarity is limited.
I am off on holiday for five weeks – (roadtesting the anywhere concept of cloud accounting while I am visiting  Ethiopia) so I will be off the air for a few weeks but hopefully keeping up with developments. [END] 
You can Follow Margaret Carey on Twitter:  @margaretcarey and @CloudAcctsToday
COMMENTS - To Comment Visit Margaret Carey's Site, a sampling of the comments are below


“Margaret,
Love the article, loved meeting you last fall, and hope I get to see you again soon!
You mention that the QB desktop to QBO migration is “robbing Peter to pay Paul”. I’ve seen it described in other articles and online comments as “cannibalizing” the desktop customers. I have to respectfully disagree with this, and here’s why.
I’ve had a bookkeeping/payroll/consulting practice for 10 years now, and I work solely with QuickBooks clients. I support the windows versions: Pro/Premier/Enterprise as well as Mac and QBO. What I see so much is businesses that buy QB Pro for about $150 USD. Many of these businesses will keep that software as long as they can – which can be well beyond the time Intuit sunsets that year version. (Case in point, I upgraded a client in 2012 from QB 2001 to Enterprise 2012).
Intuit’s income from this customer between 2001-2011: $150 USD
If that client had been using QBO, at the highest subscription (we’ll use today’s option, QBO Plus at $39.95 USD/mo), Intuit’s income from this customer between 2001-2011 would have been $4794 USD.
If were Intuit, I’d want EVERY QuickBooks desktop client to convert to QBO.
Well, even though I’m not, I still want that!!”
______________________________


“Its interesting though (to me at least) to also note the continued strong growth of QBES (around 20%) albeit from a much smaller base – QBO (and QB Pro for that matter if that’s the close equivalent) does not meet every ones needs and for many Intuit customers – particularly the larger, more complex SMBs – moving to “the cloud” is not an easy option when all the required functionality is considered. In many cases, the “the rise of the virtual machine” aka private hosted VMs is a way people, reliant on QB Desktop can get many of the benefits of being “cloud based” without migrating to a true SaaS product such as QBO or Xero.
IMO, Intuit is focussed on growing the business and as a part of that – the lifetime value (& longevity) of a customer. You’re quite correct in that QBO delivers higher LTV than Pro to Intuit and its apparent that they prefer as a business model, stable recurring revenue streams and this is easier to achieve with a SaaS product. In the case of QBES, the FSP delivers this to some degree though not all customers subscribe to this of course. To some degree I think a simple analogy to the cloud/desktop cannibalization debate is like a car maker who introduces a new hybrid option alongside the traditional gas model. Sure there will be customers who buy the Hybrid and maybe gas model sales growth declines but the car maker probably cares more about total model sales and less about the split until such time as it makes no sense to continue to sell & support the gas model. For both gas powered vehicles and QB desktop – I reckon (no pun intended) that time is a long way off.”
_______________

“Major error, acquisition rate of 200-300 is for Australian xero only ! Xero are growing at 70 percent plus per annum .globally….. Do the math and correct this article. It’s neck and neck on customer acquisition rates”.
Posted on 9:09 AM | Categories:

ORGANIZING ASSETS TO CREATE A TAX EFFICIENT PORTFOLIO

Karen Sarten for Beacon Pointe writes: Over time, investors will begin to accumulate an inventory of account types – 401(k)s, IRAs, Roth IRAs, Taxable Accounts, Annuities - the list goes on.  Additionally, the range of investment types within these accounts is sure to get more and more robust as savings increase; domestic stocks, foreign stocks, corporate bonds, municipal bonds and REITs to name a few.  And still, there will be different forms of investments such as individual stocks/bonds or mutual funds.  So how does one determine which account to hold their various investments in?  Should the high yield bond fund be held in a joint account or IRA?  What about the large cap stock fund?  Does it really matter?  The answer is yes, but…
What is Asset Location?
Asset location refers to the type of accounts in which investments are held.  An effective asset locations strategy allocates various asset classes to an appropriate account type in an effort to reduce taxes.  Broadly speaking, investors have two account types to choose from: fully taxable (also referred to as “non-qualified”) or tax favored (“qualified”). Although we cannot control tax law or market returns, we can control where investments are held.
Why is Asset Location Important?
Different asset classes have different tax implications.  For example, most dividends received from stocks are taxes at long-term capital gain rates.  Interest received from bonds on the other hand may be taxed at higher ordinary income tax rates or potentially, not at all.
Due to contribution limits set on retirement accounts, many affluent investors hold the bulk of their savings in non-retirement accounts, which are fully taxable.  Typically, these investors are usually subject to  higher income tax rates as well.  Holding a tax “inefficient” asset in a taxable account can have an impact on returns over time.
The table below provides the income and applicable tax rate (as of Q1 2014) for a few common investment types.
PPS #2 Table 1
Another deeper consideration for taxes: taxable interest, capital gains and dividends are included in Adjusted Gross Income (AGI) where municipal bond interest is not.  Higher AGI can affect eligibility to take certain deductions, make retirement account contributions and other implications. 
In addition to taxable investment income for simply holding an investment, tax may also be due upon selling an investment.  Gains realized on investments held for less than one year are taxed at ordinary income tax rates compared to capital gain rates if held for a year or longer.
Let’s take a look at a couple of examples.  Assume that a couple in the highest tax bracket is looking for an annual income supplement of $35k and have $1m to invest.  After some quick math, the couple could conclude that a 3.5% bond from XYC Co. (company merely made up for this example) will provide the income they need.  However, each dollar of interest received will be taxed as ordinary income.  For this couple, that includes 39.6% federal tax, plus a 3.8% Medicare surtax (plus applicable state tax).  Ultimately, the net income received from the bond would be just $19,810.  Alternatively, the couple could purchase a 3.5% municipal bond issued in their state of residence and net all $35k in income received.  The taxable equivalent rate required for the couple to net the same amount from XYC Co would be 6.18%.
Another good example can be made of mutual funds.  Depending on the type, mutual fund investments may provide dividend income, interest or both.  So the same considerations needs to be made as with individual stocks or bonds. In addition to the type of fund, another important characteristic to consider is turnover.  Turnover is the number of investments that have been replaced by the fund manager, expressed as a percentage.  Simply put, if there are 100 stocks in a fund and the turnover ratio is 20%, then the manager has sold 20 stocks over the period.  The higher the turnover, the greater the potential for short-term gains which are taxed at less favorable tax rates. Although turnover is not guaranteed to be the same year over year, it is a good indication of how active the fund manager is.  It is more efficient to hold high turnover funds in a tax favored account.
What Is Efficient?
The illustration below reflects an effective asset location strategy.
PPS #2 Table 2
But…
While we acknowledge that asset location is important, we don’t want the “tax tail to wag the dog.”  We believe that investment types should be selected with the primary focus on risk.  Each investor will have different dollar amounts across taxable and tax-favored accounts which may not lend to a perfect asset location strategy. If the desired asset allocation can only be achieved by placing fully taxable bonds in a taxable account, we believe the benefits of proper diversification will outweigh the tax implications.
Every investor is unique and requires individual attention.  We are happy to assist your with your unique situation – please feel free to contact us at any time at info@beaconpointeWAI.com.  ~Karen Sarten, Vice President


Posted on 9:09 AM | Categories:

The Best Tax Software

We're not familiar with Wirecutter.com however they've come up with the most complete and thorough "Best Tax Software" evaluation we've seen thus far in 2014.  Kevin Purdy for Wirecutter writes:
For renters, people with a single source of income, and anybody who waited until the last minute to file their taxes, the most seamless way to file online is via TurboTax. For those simplest of federal and state tax returns, TurboTax asks the right questions and causes the least confusion as you click your way to done.
How can we say that the leading name in online tax filing is, in fact, the smartest pick for most people? I spent more than a dozen hours clicking through each step of the online tax suites, as did Mark Francis, EA, a professional tax preparer with Lapidos, Leung & Francis, Inc. in San Francisco. Not as ourselves, but as four fictional individuals (the “Four Fake Filers,” as we called them) we designed to represent a comprehensive variety of possible tax-filing scenarios. We created them to test out different variables and conditions in the suites and represent the complexity in modern tax filing.
Francis ran most of these people through most of the scenarios (see the next section, “How We Picked,” for more detail on the Four Fake Filers). Meanwhile, I ran a very simple “Jim” and a far more complicated couple, “Bill and Amanda,” through each of the four online tax suites we considered. TurboTax worked well for Jim and could also scale up to help Bill and Amanda. That is not to say, however, that it was the only thing we would recommend.
Indeed, TurboTax wasn’t the only option that had good results. TaxACT tended to both teach people more about why their taxes would come out the way they did and catch the widest possible range of exceptions or quirks in your filling, earning our tax professional’s favor.
We also found that FreeTaxUSA was a decent cheap option for those who knew what they needed.

How we picked

What can the best tax software do for you? The answer is that maddening flavor of “it depends.”
There are people with one full-time job, no children or spouse, a rented apartment, and not enough non-profit giving or expense deductions to require itemization. There are also independent contractors with more than a dozen income statements, a spouse, two kids, a mortgage, student loan interest, membership in an LLC, and a trip to China that was kind of business, kind of fun. Good tax programs, like good accountants, have to have a system for handling all types and making them all feel welcome.
The interface should be as clean and intuitive as possible, because entering the wrong number in the wrong place could truly hurt you (or at least, your wallet).
But there are some common denominators. The process should be quick. The interface should be as clean and intuitive as possible, because entering the wrong number in the wrong place could truly hurt you (or at least, your wallet). And it shouldn’t cost so much for tax processing that you are financially at pains to pay for the service—especially since directly e-filing with the U.S. government would otherwise be free for most of us.
We searched around to find online tax suites that were known entities. We decided to focus on web options because they’re more accessible to everyone; the majority of download/packaged tax suites are made for professionals, or are at least notably more expensive than their online counterparts. 75 percent of TurboTax customers file online, according to an Intuit rep quoted by USA Today. Boxed software is mostly helpful for those who need to hold on to their tax documents or file multiple returns for family members.
It’s also important to file only with established software with a good reputation. This is very sensitive financial and identity data you are typing into these fields.
…we created a handful of fake people spread across the country and its workforce to run through these suites…
As noted earlier, we created a handful of fake people spread across the country and its workforce to run through these suites, all the way up until the moment before clicking “File.” Those fake filers are:
  • Jim, a single man in upstate New York who has one job, a small savings account, and rents an apartment.
  • Lisa, a single woman in central Ohio who also rents and has a job, but has student loan debt and a side craft business that nets some cash.
  • Bill and Amanda, a married couple living in Arizona who just bought a house, had a baby, and made some trades in their investment portfolio.
  • Richard, a single man living in Portland, OR, who makes his income from a few different jobs as an independent contractor, owns stock from a previous job, and turned half of his house into a rental property last year.
We looked for things that would make our tax pro Mark Francis happy, like asking smart questions about life changes, taking into account very recent law changes that affect withholdings and refunds, and preventing errors that you might never catch. We also took note of things that made a picky writer happy: easily understandable language, clean interfaces, the least awful upsell pitches, and no errors or goofy browser requirements.

Why listen to us?

As noted, we solicited Francis, who has filed hundreds of business, corporate, and individual taxes, to examine online tax software. Myself, I can barely link two spreadsheets. I have, however, spent a good amount of time judging, testing, and critiquing web apps, previously for more than three years as an editor at Lifehacker and since 2011 as a freelance writer for sites like Fast CompanyITworld, and others.
More relevantly, though, I am a freelance writer who co-owns an LLC, organizes an annual non-profit event, and is married with a mortgaged house and some investments normal to an early-30′s type; my taxes are decently complicated, relative to most self-filers. I have a few years of experience in maximizing my own deductions, keeping revenues straight, writing off relevant expenses, and so forth.
This background, combined with Francis’ professional experience filing taxes on behalf of his clients, was what allowed us to combine our powers to sniff out the best online tax software.

What didn’t matter (much): the actual return amounts

Every one of the suites we reviewed offered some version of a “Maximum RefundPledge,” where your fee is waived if you get a larger tax return from entering the same data in any other tax prep tool (sometimes even extended to human accountants).
…there’s not one tax suite that knows something the others don’t know.
As you might guess, the firms compete very aggressively on pricing, offerings, support, and other differentiators. But the one thing to remember is that there’s not one tax suite that knows something the others don’t know. There are only ways of guessing at what kinds of questions it needs to ask you in the “interview,” and how effective those questions are at eliciting the right answers.
Take “Jim,” our single job/apartment fellow. Other than one minor state aberration (inside the range of likely human error), his calculated returns across the five software suites were exactly the same.

“Jim” (single-job filer in NY)

Software
Federal Return Amount
State Return Amount
TurboTax
$1,552
$492
H&R Block
$1,552
$492
TaxACT
$1,552
$450
FreeTaxUSA
$1,552
$492
eSmartTax (Liberty Tax)
$1,552
$492
This wasn’t just the case for our simplest Fake Filer, either. The same applied to our most complicated filers, “Bill and Amanda,” the married Arizona couple with a new child, a new house, charitable deductions, investments, student loan interest, and a higher tax bracket.
The refund amounts for Bill and Amanda came out the same across all the sites as well (which, when entered by an accountant with a set pool of data, makes a certain amount of sense). This reinforced our decision to focus largely on usability, wording, and ease of understanding when testing these packages.

What others say about tax software

We also sought the opinions of reviewing publications, such as they could be found. Considering the “it depends” nature of tax software and the short shelf life, not many publications put real energy and time into truly reviewing this year’s consumer tax filing apps. But some do.
Consumer Reports (subscription required) did some head-to-head testing, and head-to-head-to-head reviews are a staple of the burgeoning personal finance blog realm:MyMoneyBlogThe Simple DollarThe Motley FoolMoney Crashers, and many, many more all compiled tax software reviews.
Some tech and productivity blogs, too, have a take: Techlicious, and my old stomping grounds, Lifehacker, offer up polls and reviews plus one notable human versus TurboTax accounting showdown.
Read through those links and use the software itself, and you realize that what self-filers want is for tax software to rise above utility and competence and distinguish itself with its ability to pull details, and therefore savings, out of people who might not otherwise recognize those things.
There is a flip side: It is just as important to prevent the entering of erroneous, error-triggering amounts as it is to suggest little-known breaks.
If you have taxes that you do not comfortably understand, it’s a good idea to find a human to file your taxes.
Our tax professional Mark Francis would tell you, and I would agree: If you have taxes that you do not comfortably understand, it’s a good idea to find a human to file your taxes.
Only a human can tell you for sure that your deductions make no sense or that one of your side jobs reported your income to the wrong state last year. The government will never let you know that you missed out on a big deduction, but if you have a hunch and bring your returns to a professional, they can determine (within a few years of filing) if you owe or are owed money.
That said, more than 40 percent of people are filing their own taxes these days, and if an online solution is what gets you to get your simple-ish taxes done, then done is better. On to what you should use.

Our pick: TurboTax (“Federal Free” edition)

TurboTax is simple to use and makes filing your taxes quick and confusion-free. It’s straightforward, asking all the right questions and discarding the unnecessary ones.
Just from looking at TurboTax, you can tell it’s in a different class than its competitors. If most tax tools are comparable to Windows 3.1, TurboTax is more akin to iOS. It makes entering your data simple and comfortable and moves quickly through the necessary steps while discarding unnecessary considerations. TurboTax also has convenient add-ins and mobile apps.
…tax software options perform extremely similarly in generating refund amounts, it’s wise to go with the tool that’s the easiest to use.
Since our testing showed that tax software options perform extremely similarly in generating refund amounts, it’s wise to go with the tool that’s the easiest to use. TurboTax claims that title by a wide margin.
The TurboTax "interview" process for "Jim," our simple, single filer.
The TurboTax “interview” process for “Jim,” our simple, single filer.
It’s easy to dismiss look and feel when it comes to utilitarian software, but they can make a huge difference when it comes to filing your taxes. The easier it is to use, the more likely you are to use it correctly. TurboTax offers a huge database of employers and non-profits from which it can automatically pull ID and donation data and speed things along.
More importantly, TurboTax makes wading through forms and questions less stressful by pointing out annoyances that won’t significantly affect outcomes. The end result is fewer errors. Most times, when you have to head back or forward, the page load is almost imperceptible. The layout and data entry are similarly clean and coherent.
…TurboTax makes wading through forms and questions less stressful by pointing out annoyances that won’t significantly affect outcomes.
We also appreciated how TurboTax prompts you for your information in ordered batches: Work Stuff, Bank Stuff, and so on. This makes it easier to organize your approach and pacing. There is language throughout the workflow that tells you how each section usually shakes out:
  • “Don’t worry, this information doesn’t affect your tax outcome,”
  • “Some people have W-2s with a couple of these uncommon things. Enter it if you’ve got it, skip down if you don’t.”
  • “If you put money into a retirement account, such as a 401(k), without taking any money out, you don’t need to go through this area,” with an “Explain This” link that pops out a text box.
Running through the prompts on your first shot is a smooth flow, and it’s very easy to log back in and add or correct something. The transition from the federal taxes to state-specific filing is also smooth, and the final review of your taxes for likely errors or missed deduction opportunities caught quite a few items with both single-job Jim and complicated Bill and Amanda: missing employer identification details, double-checking the per-child deductions, asking about moving costs because the house was only owned for one year.
Some of the errors were likely due to the nature of filling out the details of a fake life. That said, after checking out the support forums on several of these tax suites we tested, we learned that some (real) people know less about their own taxes than I knew about Jim’s situation, so the error-checking feature is especially useful.


what_you_do_turboThe language and style in which information is requested and presented is also a big part of TurboTax’s success. The tone is conversational but confident—a big step up from the typical instruction manual language employed by other software packages like H&R Block or TaxACT. It almost feels like you’re talking to a real person over instant messaging. In fact, sometimes you do end up talking to a real person over instant messaging—the software is quick to prompt you to ask for help or to ask a question of a representative by chat if you get bogged down.
It’s also worth noting that TurboTax is made by Intuit, which has been around since 1983 and maintained a reliable reputation throughout. In fact, our testing accountant uses different (and much more expensive) Intuit software to file taxes for his clients. As such, one can reasonably assume that Intuit has years of experience with security and privacy and some analytical knowledge of which returns get audited and which questions cause the most consternation. This translates to a number of guarantees, audit likelihood estimates, and offers for professional help throughout TurboTax.
The company’s experience and reputation may not be the main reason you would use TurboTax over a competitor, but they’re worth taking into consideration.
But TurboTax is also the market leader in self-filed tax returns, and that is reflected in the above-average pricing.
For example, the “Federal Free” online version that works for most single-income-earning, apartment-renting individuals and couples is, indeed, free for a federal return and then $27.99 per state filing. The prices scale up from there:  $29.99 federal and $36.99 per state for the “Deluxe” package that covers homeowners, charitable deductions, 1099 income, and (importantly) saving of your returns for easy access the following year. H&R Block has a near-identical price sheet, while TaxACT and FreeTaxUSA (and dozens of others) are cheaper.
…beyond “Deluxe” needs, you almost certainly want an accountant to review your taxes.
What our accountant and myself would tell you, though, is that beyond “Deluxe” needs, you almost certainly want an accountant to review your taxes.
You need to understand your rental income, investment transactions, small business ownership, and other matters—at least until you are familiar with the process and your needs and goals. As our accountant noted: “With more data entry comes more potential for error.” -SNIP-  
Kevin Purdy is a freelance writer for Fast Company,ITWorld, and other publications. FormerLifehacker editor. Author ofThe Complete Android Guide.
Wirecutter, a list of the best technology to buy as determined by dozens of hours of research and testing. Wirecutter writes: Here is an explanation of exactly what we do and how to support our work.    
Posted on 9:09 AM | Categories: