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Accounting Software - QBO vs. Xero, and what about payroll?

Updated: Feb 25, 2023

(Newsletter: tsCFO.002 v3 2023.02.24)

The QBO vs. Xero Debate

I didn’t choose this topic as much as it choose me. I kept hearing various tech startup CEO’s question whether they are using the best accounting software for their management reporting needs. The ongoing QuickBooks Online (QBO) vs. Xero debate is very active on the web today. In my experience (only reinforced by my web research), there is no other accounting software a Canadian tech startup needs to consider in today’s environment, though that situation will inevitably evolve over time. In my opinion (and I have lots of them) the QBO vs. Xero debate is not the key question to ask if a CEO wants to optimize their management reporting information, but even so I will answer it directly. Then I will pose a better question to get superior management reporting results (vs. canned reports), and I will answer that question as well.

I have prepared a table contrasting the various features, pricing levels, and 3rd party ratings for QBO vs. Xero. The table is comprehensive, and for the most part, speaks for itself. Each tech startup is unique, and management should decide in advance what criteria are most important to them. One important factor in choosing between QBO and Xero is never mentioned in the web rating comparisons I come across, possibly because the ratings come from organizations in the USA that deal with America’s more fragmented banking system. In Canada, Xero has direct automated bank feeds from CIBC, TD and BMo, while QBO has direct automated bank feeds from RBC and ScotiaBank. Without a direct bank feed, you must rely on a 3rd party bank integration service like Yodlee or Plaid, which means your bank feed may be down for a period ranging from a few days to a month if the bank makes changes to its interface. Automated bank transaction feeds are valuable in leveraging the efficiency offered by both QBO and Xero to help automate your bookkeeping process.

Based on my limited experience with Xero back in 2015, I would not have recommended that version to anyone. But the plucky New Zealand company that created Xero has improved today’s online web version by leaps and bounds, to the extent that it is now my slightly preferred accounting software choice. Based on my web research, independent rating services tend to give Xero a slight edge over QBO (less likely if the rating comes from an organization based in the USA). Having revealed my slight bias for Xero, I would caution the reader to consider carefully their specific requirements. As a Fractional CFO, there are many features in the accounting software that I don’t get involved with, particularly on the bookkeeping side. Given both QBO and Xero produce a reliable audit trail with drill down capability, I am mostly focused on extracting actuals data for effective management reporting, and Xero excels in its ability to produce Trial Balance (TB) reports with multiple comparative month columns in alignment.

What About Payroll?

QBO and Xero are in the accounting software business, and not so much in the Canadian payroll service business. Even so, both offer a payroll add-on feature for extra fees. In my limited experience, any add-on payroll services offered by accounting software vendors have been clunky and overpriced for what they deliver, and they over-populate the GL detail with highly confidential employee specific payroll data. For these reasons, I generally recommend using a 3rd party payroll service.

There is no shortage of 3rd party payroll services in Canada that are web-based, relatively low cost, and in-tune with changes in government payroll regulations. Some of the Canadian payroll services my clients have used in the past include Ceridian, SimplePay, Payworks, Payment Evolution, and if you’re getting big enough, ADP. This article is not focused on evaluating payroll services in Canada to recommend a best fit- you have to do your own homework there. Note that if your tech startup is paying for optional employee benefits (T4 box40 benefits) such as extended health, long term disability, life insurance, dental, etc., that will influence your payroll service choice. In any case, using an external payroll service minimizes confidential payroll transaction detail that gets transferred to your GL, which is a good thing.

In terms of transferring payroll gross salary actuals and benefits data from a 3rd party payroll service into the GL, I have developed a process that does this at a department total level (the best choice) with about 10 minutes of manual effort, assuming you accept my internal control guidance on how to manage tech startup payroll costs effectively. This is discussed in detail in my next Newsletter (tsCFO.003) “Internal Controls for tech startups - are they possible?” To be clear, in my opinion there are no significant efficiency or accuracy benefits to be gained from choosing either the QBO or Xero payroll add-on feature, and I prefer using a dedicated 3rd party payroll service.

The Right Question - GL Structure

A bit tongue in cheek, I am suggesting QBO vs. Xero is the wrong question because both accounting software applications do a great job with bookkeeping basics including leveraging automation (bank feeds, transaction patterns) to create a reliable and efficient audit trail, and producing standard financial reports including the balance sheet and income statement. Management reporting goes far beyond basic canned financial statements. On the management reporting side (a key concern of mine as a Fractional CFO), if you set up your General Ledger (GL) structure correctly both QBO and Xero will produce the management reporting actuals data you need.

If you make a mess of your tech startup's GL structure with a patchwork history of inconsistent GL account names / inconsistent GL account numbers, and a lack of forward planning (all of which are very common), neither QBO nor Xero can save you if you want truly effective management reporting. Your logical response is to redesign your GL structure at the next year-end opportunity (when revenue and expense GL accounts reset to zero), and archive your legacy accounting transaction history in Excel .xlsx files, as it can't be carried forward. You have to relaunch the next fiscal year's opening balance sheet in a brand new QBO or Xero file, which is populated with a forward looking GL structure that syncs with your latest forecast model lines (ie. actuals will be captured in the same lines that populate your forecast model, which have already been designed around your business model expectations for the next 36 months). A future oriented GL structure will have many GL accounts that are "idle placeholders" (especially on the revenue side) that you hope to grow into. The key point is that you have to anticipate areas of future growth in your business model, and reserve space for them in your current GL structure design (documented in a spreadsheet). You should only populate QBO or Xero with the GL accounts you are actively using, and add each new GL account from your full GL structure spreadsheet as you grow into it. Any unused accounts in your GL structure are doing no harm as "idle placeholders", waiting patiently for you to grow into them, if you ever do.

Archiving legacy QBO or Xero data in .xlsx files is not to be feared after you have finished scrubbing the balance sheet and locking down year-end actuals for an audit or review engagement (if applicable), and for corporate tax purposes. Historic actuals detail will be a bit harder to look up in archive .xlsx files than by clicking around in your accounting software, but you can still confidently preserve 100% of the data with a careful archive process. Looking up historic actuals detail after you close a year-end is fairly rare. Carrying over standing data like customer or supplier details from the old version of QBO or Xero to the new version is a concern, but both QBO and Xero offer functionality there. YouTube is your friend. If you prefer more convenient access to customer record history or other historic data, you can always choose to pay a bit more, and keep your old version of QBO or Xero alive (without entering new data) for a period of time. A full set of TB actuals trend history by month is preserved with my Internal Control process discussed in the next Newsletter (tsCFO.003). Adopting my Internal Control process would preserve convenient access to historic actuals TB monthly trend data for management reporting purposes. In any case, you should drive by looking forward through a clearer windscreen (new GL structure) at what is coming at you, not by fussing over how it might be getting a bit harder to see (archive data) in the rear view mirror.

Here is a potentially controversial opinion of mine. Canned reports out of accounting software (even customizable versions, which QBO is better at) do not provide enough format control for optimized management reporting. If you want format control, you are talking about an Excel spreadsheet. If you set controls around spreadsheet data to ensure completeness and accuracy, and if there is just one author (normally the case with a tech startup), you have nothing to fear from relying on well designed spreadsheets for complete and accurate management reporting. It is not uncommon to hear disparaging remarks about reliance on spreadsheet reporting, often the source of these comments has an alternative reporting app to sell. In fairness, spreadsheet reporting is only as reliable as the author, and at some point a successful tech startup will outgrow most of their spreadsheet reporting as they scale-up to enterprise accounting software.

In the mid 1980’s I worked in the finance department at Northern Telecom (later Nortel). Our division purchased a mainframe GL package loaded with expensive management reporting features including budget to actual comparisons. The person in charge of implementation spent a few months pulling at her hair while clocking lots of unpaid overtime, and then reverted back to spreadsheets for management reporting including budget to actuals. Fast forward almost 40 years, and the tech startup world is not much different.

If you want to provide dense information on a single page (the best way to gain insights into your business model), you need the format control that a spreadsheet gives you. If you want to produce many pages of “data dump” canned reports with information spread all over the place - just about any accounting software package will do the trick, including QBO and Xero. I’m being a little hard here to make my point. In fairness, customized reports out of QBO and Xero serve many tech startups adequately, they just aren’t the best management reporting choice in my opinion.

So if spreadsheet based management reporting is a tech startup’s best option for format and content control, what do I mean by a well structured GL that can enable it? This will be the main content of future scheduled Newsletters tsCFO.016 and tsCFO.017 per the yellow shaded list published on my website, If the following concise description is unclear, please bear with me until those future Newsletters are published. Please refer to the “Acronyms” tab under my Newsletter heading as needed to understand the next paragraph.

Very briefly, a well structured tech startup GL will reflect a deep understanding of the business model and its anticipated evolution over the next 36 months, in breaking out the P&L to achieve 4 goals: 1) Revenue segmentation (consider product, customer type, distribution channel, geography), 2) Direct costs (COGS or COR, if applicable), 3) Expense department segmentation (minimum: S&M, R&D, G&A), and 4) isolation of EBITDA (a rough surrogate for cashflow) from non-cash items such as amortization of fixed assets, and stock compensation. A well designed GL structure should put management reporting considerations (eg. isolating EBITDA for investors) before GAAP reporting considerations, but it will be capable of both so your accounting firm will not have any concerns.


Both QBO and Xero are excellent and affordable web based accounting software choices for a tech startup. If you are locked into a Canadian big 5 bank relationship, you might lean towards the accounting software that has a directly integrated bank feed, since the 5 major Canadian bank integrations are split between QBO and Xero with no overlap, and a direct bank feed is more reliable than reliance on a 3rd party bank integration app like Yodlee or Plaid.

Payroll is best handled by a web based 3rd party payroll service independent of your accounting software, which will give you more confidentiality, a better payroll experience, and better value for money.

High quality management reporting (dense, meaningful comparative information on a single page) relies less on canned accounting software reports (even customized versions) with data spread out over multiple pages, and more on a well designed GL structure which provides a foundation for reporting actuals in a highly flexible manner on well designed management reporting spreadsheets.

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