Xero for Trades Businesses in Geelong: The Setup Guide

The Problem with Most Trades Xero Files

Most tradespeople in Geelong either set up Xero themselves, had their accountant do a bare-minimum setup, or inherited a file from the previous owner. The result is usually the same: bank feeds years behind, GST codes applied at random, and a P&L that shows nothing useful.

Xero is genuinely excellent software for a trades business — but only when it's set up correctly. This guide covers what that looks like.

Choosing the Right Xero Plan

For most active trades businesses in Geelong, Xero Standard ($70/month) is the right starting point. Here's why Starter ($35/month) usually isn't enough:

• Starter limits you to 20 invoices and 5 bills per month — a single busy week on site will blow through that
• Standard includes unlimited invoices, bills, bank reconciliation, and payroll for your team
• Premium ($115/month) adds multi-currency — only relevant if you're importing materials internationally

Chart of Accounts for a Trades Business

The default Xero chart of accounts is built for a generic business. A trades business needs it restructured. At minimum, you need:

• Revenue: Labour (main trade), Materials on-sold, Call-out fees, Emergency work — separate income lines let you see your margin by job type
• Cost of Sales: Materials purchased, Subcontractor labour — these sit above gross profit so you can see your true job margin
• Vehicles: Fuel, registration, insurance, repairs — separate from general expenses
• Tools & Equipment: Under $300 expensed immediately (instant asset write-off); over $300 depreciated — your accountant will thank you for separating these
• Subcontractor Payments: Separate from employee wages — critical for BAS accuracy and PAYG reporting

Job Management: Xero + an Integration

Xero's native job tracking (Xero Projects) works for simple hourly billing. For a trades business quoting, scheduling, and tracking materials per job, you need a dedicated job management platform connected to Xero:

• ServiceM8 — popular with small trade operators (plumbers, electricians under 5 staff). Quotes, scheduling, job cards, and invoices push straight to Xero
• Fergus — widely used by Geelong plumbing and electrical businesses. Stronger job costing and reporting than ServiceM8
• Tradify — simple interface, good for sole traders and small teams. Integrates cleanly with Xero

The integration means your job invoices and material purchases flow directly into Xero — no double entry, no manual exports, no transactions lost between systems.

Handling Subcontractors Correctly

This is where a lot of Geelong trades businesses create problems. Subcontractor payments must be handled correctly in both Xero and your BAS:

• Create a supplier contact for each subcontractor in Xero with their ABN
• Record their invoice as a bill — this creates a clear paper trail
• Pay via bank transfer and reconcile in Xero to the bill
• If a subcontractor cannot provide an ABN, you are legally required to withhold 47% of their payment — this is "no-ABN withholding" and must be reported on your BAS (W4 field)

Getting this wrong can mean underpaying your BAS, which triggers ATO scrutiny and potential audit. A qualified bookkeeper ensures every subcontractor payment is categorised and reported correctly.

GST Coding for Trades

Every transaction in Xero needs the right GST code. For a trades business, the most common codes are:

• GST (10%) — labour charged to clients, materials sold to clients, most supplier invoices
• BAS Excluded — wages (PAYG handled separately via STP), bank fees, ATO payments, owner drawings
• GST Free — rare for trades, but includes some insurance and export services
• Input Taxed — bank interest received (uncommon for most trades)

If you've been coding bank fees as GST (10%), you've been claiming GST credits you're not entitled to — and your BAS is understating what you owe. This is fixable, but the longer it goes on, the bigger the correction.

Getting BAS-Ready: What We Check Before Lodgement

Every quarter, before lodging your BAS, your bookkeeper runs through:

• All transactions reconciled (no gaps in the bank feed)
• GST codes reviewed — particularly for large or unusual transactions
• Subcontractor payments checked for ABN status
• PAYG withholding matched to actual wages paid
• Fuel tax credits calculated if applicable (common for trades with fleet vehicles)

For a Geelong trades business turning over $500k+, a well-maintained Xero file takes about 2–3 hours to prepare a BAS from. A messy file takes 6–8 hours — at $200+/hr if your accountant is doing it, that's the difference between a $400 and $1,600 BAS bill.