New Zealand-based startup Xero has been working to make accounting easier for customers in the small and medium-sized business market. Today the company is announcing a new product that will extend it further into the back-office by offering up cloud-based payroll and tax software.
Xero Payroll was designed to target the more than 5 million small businesses in the U.S. that have fewer than 20 employees. For those employers, many of which outsource it to third-party providers, payroll can end up being a significant expense, between $200 and $500 per month. In addition to the cost of outsourcing, there is also the potential for human error and fines based on incomplete or incorrect information.
The product provide SMBs with the same type of cloud-based platform that it’s created for accounting, but make it available to help employees get paid and electronically file state and federal payroll taxes.
The company hopes to use the two products to complement and cross-sell each other. As a result, customers of both will be able to easily integrate their accounting and payroll systems without having to export information into a different system.
Xero Payroll is available throughout the U.S., but due to differing state tax and local regulations the electronic tax filing feature will be available in just three states to start — California, Florida, and Texas. But according to Xero CEO Rod Drury, the company hopes to expand quickly and reach all 50 states by the end of 2015.
The United States is becoming an increasingly important part of Xero’s business. To accelerate its expansion in the states, the company acquired U.S.-based online payroll provider Monchilla in November. It’s also been ramping up staff in both Silicon Valley and Denver, Colo., now with headcount of about 150 in the U.S.
“When you’re writing these massive business applications, you need hundreds of millions of dollars to invest [in them],” Drury said. “You need massive amounts of capital to build out these businesses.”
From that perspective, Xero is pretty well positioned: It had $100 million in annualized revenue last year, and saw an 80 percent growth rate year-over-year.
As more customers move to the cloud, the ability to invest further in a more horizontal platform for accounting and payroll will continue to grow.
Update: An earlier version of this article mentioned the hiring of former PayPal exec Peter Karpas to focus on the U.S. But he left after six months on the job, so… ¯\_(ツ)_/¯