Fergus + Xero: Understanding the Numbers Without the Headache

Most trade businesses do not struggle because they work too little.
They struggle because the numbers do not tell the truth.

When Fergus and Xero are set up properly, they give you a clear picture of job margins, overheads, and cashflow.
When they are not, reports become confusing and decisions get harder, not easier.

This guide explains the foundations first, in plain language, so the software actually makes sense.

---

Start With This Picture

Before we talk about Fergus, Xero, or reports, look at the example below.

Two businesses.
– Same sales.
– Very different outcomes.

	Company 1		Company 2
Sales Income	1,000,000		1,000,000
Cost of sale	580,000		620,000
Gross profit	420,000	42%	380,000	38%
Overheads	270,000	27%	340,000	34%
Net profit	150,000	15%	40,000	4%

Both companies turned over $1,000,000.
– One made $150,000 profit.
– The other made $40,000.

The difference is one understood the need to control its margins eg, you need to make enough gross margin to cover your overheads and have enough left over for net profit.

---

What a Chart of Accounts Really Is

Your Chart of Accounts is just a set of labelled buckets.

Every dollar that comes in or goes out of your business must land in the correct bucket.
If dollars go into the wrong bucket, your reports lie to you.

There are many account codes, but when you are running a trade business, only two cost buckets matter at the start.

---

Cost of Sales vs Overheads (This Matters More Than Anything)

Cost of Sales

These are costs that only exist because you did work for someone.

Examples:

• Labour on jobs
• Materials
• Direct field costs

If the job did not happen, these costs would not exist.

Overheads

These are costs that exist even if no jobs are done.

Examples:

• Office and admin wages
• Vehicles
• Software
• Rent, insurance, accounting

If cost of sales and overheads are mixed together, your margins become meaningless.

This is the most common setup problem we see.

---

Gross Margin Comes Before Net Profit

Gross margin answers one simple question:

Are your jobs priced properly?

Gross margin is what is left after labour and materials are paid for.

Looking back at the image:

• Company 1 has a 42 percent gross margin
• Company 2 has a 38 percent gross margin

That difference alone creates pressure before overheads are even considered.

Until you understand your true gross margin, nothing else matters.
– Not growth.
– Not dashboards.
– Not cashflow.

---

Where Fergus and Xero Fit In

Fergus and Xero do different jobs.

• Fergus tracks what actually happens on the job: labour, materials, progress
• Xero is the accounting system where the financial truth lives

The account codes are the bridge between them.

If sales, labour, and materials are not linked to the correct Chart of Accounts codes in Xero, reports in both systems will be misleading.

When the setup is right:

• Job costs from Fergus land in the right cost of sales accounts
• Invoices land in the right sales accounts
• Overheads stay separate

Only then do margins reflect reality.

---

Understanding Overheads Comes Next

Once your gross margin is clear, overheads become meaningful.

Overheads are mostly fixed.
– They do not care how busy you are.

Your jobs must generate enough gross profit to cover overheads first.
– Whatever is left becomes net profit.

This is why understanding overheads properly allows you to:

• Set realistic gross margin targets
• Price and quote with confidence
• Stop guessing why money disappears

---

Profit and Cash Are Not the Same Thing

This is where many businesses get stuck.

– Profit is about pricing and costs.
– Cashflow is about timing and behaviour.

A business can be profitable and still run out of cash.

Days to get paid is not a profit metric.
– It is a customer experience and expectation management metric.

Invoices are usually paid late because:

• The bill was unexpected
• The bill felt too high
• The invoice was late
• The experience was rough or confusing

This is why managing payments is the next step after managing margins.

---

Work in Progress and Getting Paid

There is always money tied up in a trade business.

• Work done but not yet invoiced
• Invoices sent but not yet paid

Fergus tracks work in progress where labour and costs are recorded before invoicing.
 Once invoiced, that value moves into Xero as accounts receivable.

Many businesses aim for:

• Around 30 days to get paid
• Roughly one month of turnover sitting across work in progress and unpaid invoices

This helps cover wages, suppliers, and tax while waiting for customer payments.

---

The Most Common Margin Leaks

If margins are lower than expected, check these first:

• Are all labour hours being logged to jobs?
• Are all materials being charged out?
• Are charge out rates reviewed regularly?

These are usually quick fixes and make a big difference.

---

Reports That Actually Matter

Once the foundations are right, reports become useful instead of overwhelming.

In Fergus:

• Business Performance Dashboard for high level margin and cashflow visibility
• Staff Overview to check labour efficiency and charge out rates
• Work in Progress reports to see what has been done but not invoiced

In Xero:

• Profit and Loss to review gross margin, overheads, and net result
• Aged Receivables to understand unpaid invoices and payment timing
• Short Term Cash Flow to see money coming in and going out soon

These reports work best once account codes are set up correctly.

---

Final Thought

Fergus does not create good numbers.
Xero does not fix pricing problems.

They make the truth visible.

Once your Chart of Accounts is set up properly, Fergus and Xero work together to show:

• Whether jobs are profitable
• Whether overheads are under control
• Where cash is getting stuck

For business specific financial or tax advice, always speak with your accountant or advisor.

– Written by Dan Pollard, founder of Fergus

For more information, read our help article!