ETF and ETN Tax Treatment for Stocks, Bonds and Commodities

Red Rock Wealth (Investment Management) writes: Tax time is a real pain for most people, and your investments don’t make things any easier. There are different rates and treatments for stocks, bonds, commodities, mutual funds, exchange traded funds (ETFs), exchange traded notes (ETNs), long term gains, short term gains – it goes on and on.

ETFs and ETNs are similar, but they tend to be taxed differently based on the underlying investments they hold. For example, stock and bond ETFs are treated the same as the stocks and bonds held within the fund. Stock ETFs are fairly tax efficient because they don’t distribute large amounts of capital gains. Bond ETFs usually pass interest payments to their fund holders monthly. Dividends and interest payments from ETFs are reported annually on your 1099, while earnings are taxed the same as the underlying stocks or bonds held.

ETFs which invest in commodities such as gold or oil are a different animal. Since they can’t buy the commodities themselves to hold, they attempt to do this by purchasing futures contracts. Shareholder income from commodity ETFs are reported annually on a K-1.

Some investors tend to be skeptical about K-1s due to their complexity or long filing times, but they accomplish the same goal as the 1099. The most interesting part about commodity ETFs is they are not taxed differently based on how long the investment is held. Usually, investments held for longer than 12 months are taxed at long term gains rates (currently a max of 23.8%). Inversely, investments held for under 12 months are taxed at short term gains rates (currently a max of 43.4%). Commodity ETFs are always taxed at 60% long term and 40% short term rates regardless the time frame the investment has been held.

ETNs and ETFs are inherently different in the fact that ETNs are actually bonds backed by the credit of the issuer. To a shareholder, this ultimately means that for whatever reason the issuer cannot repay, they are at risk for the loss. That being said, see below for a quick cheat sheet of different ETF and ETN tax rates and treatments.

IRS Eases Rules For Participation In Taxpayer Amnesty Program

Jeffrey Marks, Brian E. Maas and Bernard C. Topper, Jr. for Frankfurt Kurnit Klein & Selz write:  Taxpayers with undisclosed offshore financial assets or income may be interested to learn of changes to the IRS's Offshore Voluntary Disclosure Program ("OVDP") - an initiative designed to encourage people to bring offshore assets into the U.S. tax system. Since its inception in 2009, more than 45,000 OVDP participants have paid about $6.5 billion in taxes, interest and penalties. The recent changes in the OVDP expand eligibility for the streamlined filing compliance procedures instituted in 2012 for certain U.S. taxpayers whose failure to disclose their offshore assets was non-willful - and also make other important modifications.

What has changed?

The original streamlined compliance procedures announced in 2012 were available only to non-filers who were non-residents of the U.S. Submissions by these taxpayers were subject to different degrees of review based on the amounts of tax due and the taxpayers' responses to a "risk" questionnaire. Eligibility for the streamlined procedures now has been expanded to include individual U.S. taxpayers (including estates of individual taxpayers) who (1) do not meet the specified criteria for being deemed non-resident; (2) have previously filed a U.S. tax return (if required) for each of the most recent three years for which the due date (including extensions) has passed; and (3) have failed to report gross income from a foreign financial asset and pay tax as required by U.S. law, and may have failed to file a Foreign Bank Account Report (FBAR) on FinCEN Form 114 (previously Form TD F 90-22.1) and/or one or more international information returns (e.g., Forms 3520, 3520-A, 5471, 5472, 8938, 926 and 8621) regarding the foreign financial asset - and such failures resulted from "non-willful" conduct (negligence, inadvertence or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law).

For both U.S. residents and taxpayers residing abroad, the recent changes (1) eliminate the requirement that eligible taxpayers have $1,500 or less of unpaid tax per year; and (2) eliminate the requirement to complete and submit the "risk" questionnaire. As was the case for taxpayers using the original streamlined compliance procedures, taxpayers using the new streamlined compliance procedures are required to certify that their prior failures to comply were due to non-willful conduct. For eligible U.S. taxpayers residing outside the U.S., all penalties will be waived, and for eligible U.S. taxpayers residing in the U.S., the only penalty will be a miscellaneous offshore penalty equal to 5% of the amount of the previously undisclosed foreign financial assets, which is a substantially lower penalty than the penalty generally applicable under the OVDP.

The other modifications of the OVDP include:

• requiring additional information from taxpayers seeking to participate in the OVDP (For example, OVDP submissions now will require more extensive information regarding the foreign financial institutions at which undisclosed assets were held and the establishment, maintenance and use of undisclosed accounts.);
• eliminating the existing reduced penalty percentage for certain non-willful taxpayers in light of the expansion of the streamlined procedures;
• requiring taxpayers to submit all offshore account statements and pay the offshore penalty at the time of their OVDP application;
• allowing taxpayers to submit voluminous records electronically rather than on paper;
• increasing a taxpayer's offshore penalty from 27.5% to 50% if, before the taxpayer submits his OVDP pre-clearance request, either a foreign financial institution at which the taxpayer has or had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement has been publicly identified as being under investigation or as cooperating with a government investigation.

In light of these changes, the U.S. Government's ongoing successful efforts to obtain U.S. account holder information from foreign financial institutions, and the benefits of the new streamlined compliance procedures, individual U.S. taxpayers who have failed to disclose their foreign financial assets or income may wish to consult their accountant or lawyer about participating in the new OVDP.

You can visit the author of this article here, www.fkks.com

5 Quick Rules on Tax Reform for Entrepreneurs and Small Business

Raymond J. Keating for the SBE Council writes: There’s a great deal of political talk about tax reform these days. Whether this is mere posturing or a precursor to real legislative action is an open question, to say the least.

But as the debate and discussion continues, tax reform advocates must not ignore entrepreneurs and small businesses.

So, here are 5 quick rules that must be recognized from an entrepreneur and small business perspective as tax reform moves ahead.

1) Corporate Income Tax Rates Matter to Small Business. Reducing our high and non-competitive corporate income tax rate of 35 percent – which can top 41 percent when state tax rates are factored in – is not just an issue for big business. After all, among employer C Corporations in 2011 (latest Census Bureau data), 99.2 percent had less than 500 workers, and 86.4 percent had fewer than 20 employees.

2) Personal Income Tax Rates Matter to Small Business. Of course, the case can be made that the personal income tax rate matters even more to entrepreneurs and small businesses, since more than 96 percent of businesses, according to the latest IRS data, pay the personal income tax (as sole proprietorships, partnerships, S-Corps, etc.) rather than the corporate income tax. The top federal personal income tax rate is 39.6 percent, rising to 43.8 percent with the Medicare income tax, and reaching as high as 52 percent in California, for example, after adding in state income levies. That’s non-competitive and destructive.

3) Zero Out Capital Gains Taxes. Given that entrepreneurship and investing are the market endeavors that drive economic growth, it makes no sense to tax the returns on such critical risk taking. For good measure, gaining access to capital stands as the biggest challenge faced by entrepreneurs. Yet, under President Obama, the capital gains tax has increased from 15 percent to 23.8 percent, and he would like to raise the top rate further to 30 percent. Also, since capital gains are not indexed for inflation, the real capital gains tax rate is even higher. Make no mistake, being a direct tax on the returns of risk taking, the capital gains tax could rank as the most economically destructive levy imposed by the federal government. Both the individual and corporate capital gains taxes should be eliminated under pro-growth tax reform.

4) Make Expensing a Permanent Option. Under President Obama’s 2015 budget plan, he called for small business (Section 179) expensing of capital expenditures up to $500,000 (with expensing phased out by the amount the investment tops $2 million). This is the level that prevailed from 2010 to 2013, and would be made permanent under his proposal. This would be a minimal goal under tax reform, however, as all businesses should be given the choice of expensing capital expenditures or using depreciation. A permanent expensing option would be a big plus for investment, and therefore, for economic growth, productivity, and income growth.

5) Tax Reform Must Not Be a Tax Increase. Finally, in the past, tax reform efforts operated under the overarching principle that the final product would strive for revenue neutrality. That is, the elimination of deductions and credits in order to lower tax rates would not result in a net tax increase. Unfortunately, some talking tax reform today, including President Obama, have pushed the idea that tax reform wind up being a significant tax increase. Entrepreneurs, small businesses and our economy in general already have suffered through enough tax increases in recent years. In fact, from the perspective of maximizing the potential growth effects of tax reform and helping to get the economy back on track, one can make a strong case that reform should implement a sizeable tax cut.

U.K. MarketInvoice partners with Xero to offer instant funding to UK businesses

Two major fintech companies are partnering to offer businesses unparalleled access to almost instant funding. The partnership between MarketInvoice and Xero will enable businesses to apply and be approved for funding directly through their accounting software in a total of just 20 minutes.

After the one-off approval process is complete, businesses can repeatedly generate near-instant finance with just three clicks of a mouse by selling their long-dated invoices directly to investors.

Utilising the data held by Xero, funding decisions can be made much faster than ever before. This is the first time instant, flexible finance has been available to UK businesses outside an overdraft or credit card, with the process of application significantly simpler and more accessible than traditional forms of finance.

MarketInvoice CEO Anil Stocker said: "Accessing finance for a growing business has long been a painstaking process dogged by delays, hidden fees, and complex long-term contracts. All of that is changing. MarketInvoice and Xero are both companies using innovation to shake-up jaded industries and this partnership changes the way businesses access finance.

"We're harnessing two pioneering innovations to put power back in the hands of business owners. By bringing big data and intelligent finance together we can help businesses access funding in a tiny fraction of the time it takes to meet your bank manager."

Gary Turner, Xero UK MD, said: "We are pleased to partner with MarketInvoice to offer business owners access to new, alternative and flexible means of finance through this new addition to our cloud ecosystem.

"The chronic challenge small businesses face in trying to access working capital isn't helped by the fact their accounting data is locked away inside archaic systems and often out of date. Xero's cloud-based accounting software easily eliminates these issues and so it's very encouraging to see new funding services now emerging that unlock cash tied up in long-dated invoices directly through our cloud accounting platform."

How it works:

Businesses go to the MarketInvoice Xero portal and click 'apply through Xero'. They then login (if not already logged in) to their Xero account and an application form is pre-populated with data from Xero. They set up a password and contact number and click apply.

MarketInvoice will get back to within 24 hours (usually 20 minutes) to let them know if they've been approved.

Once approved businesses can access the MarketInvoice platform directly from Xero and sell selected invoices in just three clicks. Funding will be advanced within a couple of hours. 

Australia: Wave Apps Accounting Review with Follow Up From Wave / Payroll Pricing in U.S. & Canada Compared to Xero

 Alexey Mitko for Digital First writes: When doing an app review it is always difficult to give a general recommendation, as apps are usually developed and work great for a particular kind of client. With Wave Accounting this dilemma does not exist as the app is placed firmly in the “has a couple good ideas, not ready for daily operations” category.

Wave Accounting positions itself as a collection of accounting apps for small business. Some functionality is available on the mobile device with additional features accessible through the online portal. The mobile app can send invoices from your iPhone, along with adding new client records and products or services. The app also provides provides simple cash flow analytics and a notifications centre.

Overall, the app sports a clean and fluid look but needs a bit of testing as it did not allow me to add sales tax or choose a sales account straight after downloading it on an iPhone 5C. The app proceeded to crash when I first tried to add a product but worked without problems afterwards.

The web portal gives access to more apps and functionality and positions itself as an accounting platform with invoicing, bill tracking, Yodlee bank feeds, payroll management (US and Canada only), some reporting and a paid-for services section.

Some functions are done well. For example, CSV imports include very accessible step by step instructions, and receipts processing is a step above the digital storage seen in other accounting platforms.

However, a couple of features require a redesign and additional thought. To name a few:

1. No Credit Notes

While I could raise an invoice with a negative amount as a total, I wasn’t able to offset it against another invoice without using a clearing account. Credit notes are an essential feature in invoicing but are apparently missing from Wave.

2. No Custom Invoices

Invoices are not freely customisable, you need to adhere to one of the three templates provided. While not all businesses need invoices with a custom layout, the feature is common across cloud accounting platforms.

3. No Audit History

There is no audit history yet you are able to invite additional collaborators to your business account.

4. No bulk invoices or bills

There is no way to bulk upload invoices or bills. This can be problematic if your invoices are generated by another system or if you have a large number of invoices you need to key in.

5. Slow reconciliation

The bank reconciliation is not entirely intuitive. It relies on a tabular format and may take additional time if volume of transactions is significant.

In terms of pricing the basic version of Wave is free. The money is made on advertisements, higher than average credit card processing fees and product recommendations.

A special note to put credit card processing charges in perspective. The 2.9 percent charge that Wave asks for credit card processing compares with 2.7 percent for Stripe and 2.4 percent for PayPal. For a small business in Australia that turns over $300,000 per year a 0.2 percent difference would mean $600 per year and a 0.5 percent difference would add up to $1,500.

Wave’s functionality is sufficient for a freelancer with straightforward affairs, not a small business owner. Other cloud accounting applications offer functionality and refined user interfaces that are ahead by several years of development.

Alternative platforms are usually not free to use but would provide a scalable solution for your business and additional options when it comes to structuring your business processes.

It remains to be seen if Wave is able to catch up, but it probably has a brighter future concentrating its development efforts for businesses that do not require payroll.

___________________________Comments__________________________

Scott Zandbergen says:

July 29, 2014 at 1:46 am

Hi Alexey, I’m with Wave so thought I’d offer my comments and opinions on this article:

I think part of challenge here is the way in which you are using the term “small business”. At Wave, we serve customers in the 0-9 employee segment. Many of our customers have no employees, but at 40-50% have 1 or more. However, one thing to be clear of is that EVERY one of our customers, including those with no employees, still consider themselves to be a “small business”. Sure, there are different labels you can use (solopreneur, solo trader, etc.), but they’re still small businesses. And as a result, when your headline says “..falls short for small business”, we believe that to be unfair and inaccurate.

Wave now has about 2 million customers globally in our ecosystem, with 10s of thousands of very happy small business Wave users in Australia.

As far as pricing goes, you made a comment that at 5 employees, we’re basically on par with Xero. Here’s how I look at it:

- Wave’s price for 5 employees is $25 (payroll only available in the US and Canada)

- Xero’s price in the US for 5 employees is $30. But, there is no direct deposit included in that plan. There is also no multi-currency in that plan. Wave includes these things at no additional cost, because after all, we’d argue that charging extra for basic functionality like this could be considered nickel & diming your customers.

- You also need to factor in that with Xero, you need to pay for each company. With Wave, you can create as many companies as you like.

- The more comparable Xero package would be their “premium 10″ at $70/month: http://www.xero.com/us/pricing/

One other big thing that just changed last week, (and I noticed you guys already blogged about it) is that Stripe dropped their fees in Australia. The fee is now 1.75% + $0.30 for domestic Visa & MasterCard. Amex & International cards are 2.9% + $0.30. This is a big win for our customers, as we’re now significantly more competitive than Paypal. And it’s worth noting that Paypal has other hidden fees that you may not see on the surface (virtual terminal fees, fixed fees, etc.)

Another point of differentiation with Wave is how we actually handle payments. Firstly, we can process payments in the web app or directly from the mobile app. Secondly, you can get set up to take cards immediately. One tap/click and you’re good to go. No forms to fill out, no clunky approval processes. I’d encourage you to experience this process for yourself, then go compare with any other accounting/invoicing app on the market. You might be surprised 

Cheers,

Scott Zandbergen

@szandbergen

Click here to view/read the original article and all comments @ Digital First

Avalara TrustFile Wins Innovation Award for Simplifying Sales Tax Reporting & Filing / a totally free sales tax reporting and filing solution for on-line sellers

Avalara, Inc., a top provider of cloud-based computer software that delivers a broad array of compliance options related to sales tax and other transactional taxes, nowadays announced that Avalara TrustFile™ (http://www.trustfile.com), a totally free sales tax reporting and filing solution for on-line sellers, has won the CPA Practice Advisor Tax and Accounting Technology Innovation Award. 

“The Innovation Awards are focused on shining a spotlight on technologies that are proving exceptionally beneficial for accounting firms, or for the customers they serve and advise,” mentioned Isaac M. O’Bannon, managing editor of CPA Practice Advisor. “Avalara has lengthy been an innovator in technologies for businesses, and its redesigned TrustFile method, which received the Innovation Award this year, continues this trend, helping tiny companies be far more productive and profitable, streamlining their sales tax reporting and filing.”

TrustFile offers detailed sales tax reporting information across more than 12,000 tax jurisdictions in the United States, helping online sellers know specifically exactly where, when and how considerably to file. Ecommerce organization owners can use TrustFile to figure out whether or not they are collecting the correct amount of sales tax in each and every individual state, and then store a record of their sales tax history securely in the cloud.
TrustFile supports Fulfilment by Amazon sellers with timely, correct details on sales tax collection specifications primarily based on Amazon’s company presence in states or municipalities exactly where a seller’s customer might reside. With assistance for PayPal, TrustFile adds yet another layer of integration to make managing sales tax easy. 

Furthermore, Avalara’s totally free TrustFile answer permits uploads and reconciling of sales transaction for merchants using Etsy, eBay, Shopify, Bigcommerce, Large Cartel, WooCommerce, and HighWire – as properly as .csv files uploaded from practically any platform an ecommerce seller selects to run their business. Customers simply import transaction history and TrustFile creates a detailed sales tax filing report. Sellers can also maintain track of how much sales tax has been paid in case of an audit. 

“A few cloud-primarily based solutions exist to assist tiny ecommerce organizations with the pain of handling sales tax reporting needs, but at a expense,” stated Webb Stevens, Head of Item at Avalara. “We’re pleased to get rid of this obstacle by offering our TrustFile resolution cost-free of charge. It’s our way of helping budding ecommerce companies get a foothold in a threat-free way.” 

Avalara will be demonstrating its TrustFile answer at booth # 1229 at the Web Retailer Conference + Exhibition held at Chicago’s McCormick Location West June 10 – 12, 2014.

About Avalara
Avalara aids firms of all sizes obtain compliance with sales tax, excise tax, and other transactional tax requirements by delivering complete, automated, cloud-primarily based options that are fast, precise, and straightforward to use. Avalara’s finish-to-finish suite of solutions are made to properly handle difficult and burdensome tax compliance obligations imposed by state, local, and other taxing authorities in the United States and internationally. 

Avalara gives hundreds of pre-built connectors into top accounting, ERP, ecommerce and other enterprise applications. The organization processes millions of tax transactions for clients and free customers each and every day, files hundreds of thousands of transactional tax returns per year, and manages millions of exemption certificates and other compliance related documents. Founded in 2004 and privately-held, Avalara’s venture capital investors include Battery Ventures, Sageview Capital, Arthur Ventures, and other institutional and person investors. Avalara employs a lot more than 700 people at its headquarters on Bainbridge Island, WA and in offices across the U.S. and in London, England and Pune, India. Far more data at: http://www.avalara.com

New Breed of Small Business Accounting Apps: 5 Spreadsheet Killers in the Cloud : Xero , FreeAgent , KashFlow , Nutcache , Street Invoice ( Quickbooks Alternatives )

Todd Spear for GetApp writes: If you’re like some small businesses, you may be under the wrong impression about the tools to maintain and close your books. You might think you have only two choices: spreadsheets or QuickBooks. But that couldn’t be further from the truth.

You now have access to an ever-expanding field of cloud-based accounting apps. More importantly, a few accounting apps on the market stand out as strong alternatives to QuickBooks or humdrum Excel spreadsheets.

That’s what we’re covering in this article. But rather than looking at idle clones of older software tools, we’re discussing accounting apps that offer new and exciting features, integrations and forward-thinking pricing models.

Let’s dive right in and look at five spreadsheet killers from the cloud!

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Xero

Xero is a cloud-based accounting app that’s made quite a name for itself since its inception in 2006.

Xero is made with mobile-friendliness in mind, allowing you to keep track of your income and expenses no matter where you go. The app’s simple interface allows you to see your current balances at-a-glance, as well as peek at upcoming bills and outstanding invoices.

Xero integrates with other business apps (like WorkflowMax, Vend, and Expensify.)

Xero makes reconciliation ultra simple (in a way that will be very familiar for anyone who’s ever reconciled on paper – albeit, more simply).

Advantages of Xero:

• Accounting and payroll in one app (at one price)
• Unlimited users (your staff + accounting professionals)
• Simple, powerful interface
• 99.9% up-time
• Free 24/7 email support
• Integrates with more than 300 third-party business apps
• Xero starts at $9 per month and its pricing scales up alongside your growing company, based on the size and complexity of your accounting and payroll needs – not the number of users.

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FreeAgent

FreeAgent is an accounting app especially for freelancers and small businesses.

FreeAgent is fully cloud-based, meaning there is nothing to install and you can access the app from anywhere with a mobile or Internet connection.

FreeAgent departs from the old notions of accounting in the digital space because it incorporates proposals and invoicing. Those tasks are of particular interest to freelancers and small businesses, and FreeAgent manages them with ease.

FreeAgent also sports a squeaky-clean, mobile-friendly interface (for iOS devices). What’s more compelling to us though is he heightened security offered by FreeAgent. Your data is routinely backed up to FreeAgent’s servers. FreeAgent even encrypts your data with 256-bit SSL encryption. That gives you peace of mind, when you file away your accounting data in the cloud with FreeAgent.

Advantages of FreeAgent:

• Invoices and proposals
• Tax estimates
• PayPal and GoCardless integrations
• Bank statement importantly
• Real-time cash flow and P&L statements
• FreeAgent offers straightforward pricing at $24 per month.

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KashFlow

KashFlow focuses squarely on the UK market.

It’s also utterly simple to operate, with its developers boasting that no accounting knowledge is necessarily – no jargon, no no complex operations, and, best of all, no complicated formulas to remember.

KashFlow even makes VAT a snap – and that’s reason enough alone to give it a try.

The development team responsible for KashFlow have seen fit to cut it down to only those essential features for small business accountants.

Advantages of KashFlow:

• Payroll functions
• Automation features
• Third-party integrations
• Invoicing
• Proposals and estimates

KashFlow is very simple to use. It’s unique focus on the UK makes it a no-brainer if that’s your market.

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Nutcache

Nutcache is a free invoicing and time management app. Why does it make our list of accounting apps? The reason is that some businesses are just that simple – all they need is invoicing and time management.

Nutcache boasts easy invoicing and time management. If you’re a one person show, you’ll be able to keep your sanity as you keep track of multiple projects.

Nutcache also allow you to track expenses. This helps you gauge the profitability of your business (or micro-business).

Nutcache is completely free, and the company places no limit on the number of invoices and transactions available to you.

Advantages of Nutcache:

• Easy to use
• Ideal for freelancers, small businesses, and micro-businesses
• Professional invoicing
• Simple data export
• Free!

Nutcache is the accounting app for the rest of us – and it proves that no task is too small.

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Street Invoice

Street Invoice is a mobile accounting app that works on Android, Blackberry and Windows PC.

Street Invoice makes it easy to send professional-looking invoices to your customers, as well as capture signatures.

This is great for your mobile business, as you can use your smartphone to collect payments and capture signatures on-the-go.

Street Invoice’s mobile integration is very well implemented. The app even allows you send invoices via text message, email or chat. On the other end of the Street Invoice spectrum, the app provides clean, professional reports of all your transactions.

Advantages of Street Invoice:

• Mobile invoicing and payments
• Estimates
• Cost tracking
• Mobile printing
• Ultra-secure cloud-based services

Street Invoice is super simple and highly mobile. If that’s what fits the bill at your business, you owe it to yourself to give Street Invoice a shot. A freemium version of Street Invoice is offered and paid subscriptions start at $4.99 per month.

Here's What It's Like To Work At Xero, The Accounting Software Company Which Is Flipping The Industry On Its Head

Alex Heber for Business Insider Australia writes: Xero, the cloud accounting software company which hails from New Zealand but has been adopted as an Aussie tech company – especially after its ASX IPO a couple of years ago – looks like a pretty cool place to work.

Xero MD Chris Ridd told Business Insider in three years its Australian operations have grown from seven people in a little office in the Melbourne suburb of Richmond to over 150 employees.

“It’s all about having fun and working hard. Everyone’s passionate and comes in with a purpose of what we’re doing and that’s been a big factor in our success,” he said.

While it’s no longer considered a startup, the company is trying to keep its culture true to its roots. Ridd said becoming a global corporate but staying nimble requires strong values including being human and transparent.

“You can see when corporate stuff starts to creep in,” he said, adding when that happens the company slows down with “unnecessary rules, when people are trying to protect turf and worrying about their own careers and managing up.”

“You’ve got to create a culture where people want to help each other, they’re happy to share information. When they see behaviours that are against your company values that they challenge each other – they don’t wait for management to step in,” he said.

“It’s all those subtle moments of truth along the way that make up a culture.”

Black and white photograph of the iconic Brighton bathing boxes in Victoria sprawled across the foyer wall in Xero’s Melbourne office. Image: Supplied. 

Two of the biggest physical challenges the company has faced is employing the right people and housing all its new staff. 

“The challenge for any business in hyper growth is in the early days you can have your national meetings in a cafe – seven staff. As things grow you’ve got to really watch who you bring into the company,” Ridd said. 

Ridd said he gets involved, in some form, in every interview.

“I like to do the last gate keeping interview. It’s not that I’m a control freak, but I do want to stay connected for two reasons: I want the people to know that I care – I don’t care if it’s a customer support role or a senior leadership role – I want to meet everyone who is coming into the business because I think it sends a message of ‘hey I want to know about you’,” he said.

Ridd explained he’s on the look out for culture fit, as well as what drives the candidate and what they know about the company.

“I’ve said no probably three times in the last year,” Ridd said, adding it was over about 60 interviews and it always came down to culture fit and the person’s ability to cope with change.

Musical Accountants

There was an in joke at Xero for a while that because of Ridd’s musical background – he plays in a band – that you would get a job at Xero if you’re a musician.

For the last two years at Xero’s annual conference, the entertainment has been the company’s in-house band, made up of staff, accountants and bookkeepers.

“We don’t hire an external band,” he said, adding he gets involved playing guitar, harmonica and singing.

“We have jams in the office,” he said, adding “We’ll have a jam session probably every couple of months on a Friday…It’s good fun.”

Here’s a video of the band at last year’s event.

Too much information

Communication in any company is crucial for growth and employee engagement. Ridd said at Xero it’s all about transparency.

“I’d rather tell them more than less. And I think sometimes that gets you into trouble but at least people know then that we’re being completely open and honest,” he said.

Australian operations

In May Xero hired 23 new staff and about another 15 people in June. The company is now building its product development team in Australia, with 15 developers in Canberra and another 30 in Melbourne. 

“All of our development was done out of Wellington, and Wellington is about the size of Geelong,” Ridd said. 

“The theory at the time was we’re not going to be able to scale our development capability to the level that we need to with the limited resources and talent pool that’s available in that market.

“I fully expect over the next couple of years that team will be up to around 80 to 100 [developers] in Melbourne.”

But it’s not just developers the company looks for.

“We hire a whole mix of people – sales, marketing, customer care, you name it. But one of the faster growing areas is development,” he said.

“My difficulty early on was finding tax geeks…They don’t grow on trees.”

But one of the hardest positions Xero struggles to fill is front-end designers – an important role considering part of the company’s product strategy “beautiful design”. Xero has simplified accounting and made it almost fun, where the experience, for example, of doing a bank reconciliation is akin to playing a game of Tetris, pulling in bank feeds to match up transactions simply. 

“We never got into accounting to build an accounting product. It was understanding the workflow of small business,” Ridd said.

Xero is currently in the process of expanding its office in Hawthorne. Signing a lease for over 800 square metres in a new building which the company is looking to house between 250 to 300 people over the next few years.

The fit out is currently in the planning stages and company management has been scoping out the Atlassian and Google offices in Sydney this week to get some ideas.

The existing offices have a pool table, big open seating plan and industrial kitchen. It’s understood the new space will include similar industrial design elements.

Market movers

Australia, with about 1.8 million small businesses, is Xero’s fastest growing market. Ridd said the Uk is also showing strong growth year-on-year and the US, with about 27 million small businesses, is a big market the company is still trying to crack.

“The worst thing we can do right now is go after a whole lot of opportunities and spread ourselves to thin,” he said.

“We’re likely to go into markets that are English speaking so Canada, South Africa, Ireland.”