Where to start with Xero if you've never used it before.
By Karen Dunford6 min read
Most people sign up to Xero, log in, and immediately feel overwhelmed. The dashboard has nine widgets, the menu has fifteen items, and the help articles assume you already know what a chart of accounts is. So you close the tab and don't come back for two weeks.
Here's the order I'd actually do things in - what to do first, what to do once you've been running for a few weeks, and what most people skip that comes back to bite them.
Step 1: Get your settings right before you do anything else
Before you reconcile a single transaction, configure the basics. Otherwise you'll have months of work to redo later.
The things that actually matter:
- Financial settings. Set your tax basis (cash or accrual), your GST registration status and filing frequency, and your financial year-end. Most NZ businesses run 31 March, accrual basis, 2-monthly GST.
- Organisation details. Legal name, trading name if different, GST number, address. This shows up on every invoice you send.
- Currency. NZD by default - leave it unless you trade in another currency regularly.
- Invoice settings. Default payment terms, footer text, branding. This isn't cosmetic - it's how clients perceive you.
Step 2: Connect your bank feed
The bank feed is the engine. Every transaction your business bank account sees, Xero pulls in automatically. You then code each one (or set up rules so it codes itself).
Set up a feed from every account the business uses - main operating account, savings, credit card, anywhere money flows for the business. Don't mix personal and business accounts. If you currently do, this is the moment to separate them. Open a dedicated business account if you haven't already.
Step 3: Build your chart of accounts properly
This is the bit most people skip and most people regret. Xero's default chart of accounts is generic - designed to work for any business, which means it's not optimised for yours.
A good chart of accounts maps to how you think about your business. If you run a café, you want separate lines for food costs, beverage costs, packaging, wages. If you're a contractor, you want lines for tools, vehicle costs, subcontractors, materials. Generic categories make your reports useless because everything ends up in "other expenses".
This is where a bookkeeper earns their fee in the first month. We'll go through what you actually spend money on, build a chart that reflects it, and set up rules so most transactions code themselves correctly going forward.
Step 4: Code the first batch of transactions
Now the real work starts. Every transaction in the bank feed needs to be coded to an account in your chart. Income to income accounts. Expenses to expense accounts. Transfers between your own accounts get coded as transfers (not income or expense - this trips a lot of people up).
Don't try to do six months in one sitting. Do a week, see how it feels, build muscle memory. The first batch is the slowest - within a month you'll be coding transactions in seconds.
Step 5: Set up invoicing
If you invoice clients, set up your invoice template properly. Logo, branding, payment terms, bank details for direct payment, GST treatment. Send a test invoice to yourself and look at it - is this how you want clients to see you?
Set up recurring invoices for anything regular. Set up automatic reminders for overdue invoices (this alone usually cuts your debtor days in half).
The bit most people skip
Bank rules. Once you've coded the first month of transactions, set up rules so the same kind of transaction codes itself next time. Your monthly Spotify subscription? Rule. The supplier you buy from every week? Rule. Your accountant's fee? Rule.
Within two or three months, well-configured rules will be coding 80% of your transactions automatically. You just review and confirm. That's the leverage.
What you don't need to do yet
Xero has a hundred features, and you'll see them all in the menu. You don't need most of them. Inventory tracking is for businesses with physical stock and a real reason to track it. Projects is for businesses that bill by project. Multi-currency is for businesses that trade internationally. Ignore the menu items that aren't for you.
When to bring in help
If you can spend a quiet weekend with the Xero help docs and get steps 1 through 5 set up confidently, do it yourself - you will learn things that are useful forever. If the prospect of that fills you with dread, or if you've already started and it's gone sideways, talk to a bookkeeper. Setup done properly with someone alongside you is what the first couple of months should look like.
- Karen