We recently onboarded a client who had been struggling with legacy issues, particularly the connectivity and integration of apps critical to their financial reporting. These integration problems, along with mismanagement of financial transactions, led to inaccuracies in their accounts, creating frustration and inefficiencies in their operations.
The Challenge
The client was facing multiple challenges that were severely affecting their ability to rely on Xero for accurate financial reporting. Specific issues included:
- Over 1,000 unreconciled bank transactions, creating discrepancies in financial records.
- Reliance on internal spreadsheets rather than Xero to make key business decisions.
- Duplicated supplier invoices, leading to incorrect financial data.
- Lack of proper integration between their apps and Xero, causing inefficiencies.
- Incorrect VAT claims on invoices from Ireland (e.g., Google and Facebook).
- Misallocated nominal codes, such as penalties and vehicle purchases being incorrectly posted under Cost of Sales.
- Poor breakdowns in their Profit & Loss (P&L) statement, with unrelated costs lumped together under Cost of Goods Sold.
- Raising invoices and submitting VAT returns prematurely, before work had even begun.
This situation not only made accurate financial reporting difficult, but it also opened the door for potential penalties from HMRC and hindered the client’s ability to make informed business decisions.
The Solution
We implemented a structured approach to resolve these challenges, ensuring that the client could fully utilise Xero for accurate and reliable financial reporting:
- Bank Reconciliation: We reconciled all 1,000+ bank transactions, obtaining invoices wherever possible to claim VAT appropriately.
- Supplier Statement Reconciliation: Duplicated supplier invoices were identified and voided, ensuring only accurate costs were reflected in the accounts. We also filed a VAT 652 form to correct any VAT return errors.
- Supplier Rules Setup: We created specific rules for suppliers to automate the correct allocation of nominal codes, saving the client time and reducing manual errors.
- VAT Corrections: We corrected VAT claims that were made in error, particularly for invoices from Irish suppliers.
- Recode Nominal Transactions: We reviewed the entire balance sheet and P&L statement, reallocating transactions to the correct nominal codes. Key examples include:
- Penalties previously posted under Cost of Sales were moved to the appropriate expense code.
- Car purchases that had been recorded under Cost of Goods Sold were corrected.
- Loan repayments were adjusted to accurately reflect both the capital and interest portions.
- Improved P&L Breakdown: We reorganised the P&L statement to reflect a more accurate breakdown of costs. For instance, costs for hotels and fuel used by subcontractors were reallocated from Administrative Costs to Cost of Sales.
- Invoicing Practices: We advised the client to use quotes rather than raising invoices for the total amount before work had begun, ensuring VAT submissions were aligned with work completion.
The Value and Impact
The solutions we implemented have created significant value for the client, both immediately and for the long term:
- Accurate Financial Data: The client can now rely on Xero for up-to-date financial information, eliminating the need for error-prone internal spreadsheets.
- Avoidance of HMRC Penalties: By submitting the VAT 652 form and correcting VAT claims, the client has avoided penalties from HMRC.
- Accurate P&L and Year-End Accounts: Duplicated invoices and misallocated nominal codes had distorted the P&L, but now, with accurate records, the client can submit correct year-end accounts and Corporation Tax returns.
- Time Savings: Automating supplier rules and setting up proper coding for transactions has saved the client time, reducing manual intervention when posting invoices.
- Informed Decision-Making: With accurate allocation of costs, the client now has a clear understanding of where their money is going, allowing them to make better business decisions.
- VAT Compliance: Ensuring that VAT is submitted only when work is complete has improved compliance and cash flow management.
Conclusion
By resolving the client’s app integration and financial reporting issues, we’ve transformed their reliance on outdated spreadsheets and inaccurate data into a seamless Xero accounting experience. They now have confidence in their financial reporting, reduced the risk of penalties, and improved decision-making capabilities through clear and accurate financial data.
If your business is struggling with similar issues, we can help you get back on track with reliable financial systems and tailored solutions. Contact us today to discuss how we can support your business growth.