What Is The Best Bookkeeping Software For Small Business?
Small business owners benefit from accounting software because it helps them track accounts receivable and accounts payable, have a clear understanding of their profitability, and be prepared for tax season. In the world of accounting software, a small business is one that can use out-of-the-box software without requiring extensive customizations. As a business grows, its accounting needs become more complex, and a custom enterprise resource planning (ERP) system is often needed.
There are many different types of accounting software available for small businesses, with varying capabilities and price tags. Generally, the type of industry and number of employees are two factors that can help a small business owner begin to choose the appropriate accounting software. For example, a freelancer would not need the same features in the accounting software as a restaurant owner.
You (literally) can’t afford to lose track of your business’s finances. Luckily, plenty of accounting software options can help you organize expenses, bill clients, and keep an eye on your bottom line. The trick is finding accounting software with the features you need at the price you can afford.
With dozens of options, it’s easy to get lost in the sea of accounting software options—but don’t worry. We’ve reviewed our 10 favourites below to help narrow your selection.
When you start a business, accounting software is one of the first business applications you need to buy. Choosing the right one is essential because you’ll use it every day to track the money coming in and going out of your business. With it, you’ll create invoices, record incoming and outgoing payments, identify and follow up on past due to receivables, and run reports that help you analyze your financial health and various aspects of your business.
With hundreds of accounting software programs on the market, it’s challenging to decide which one to choose. In our search for the top accounting software solutions, we looked for affordable, easy-to-use accounting programs designed for small businesses. We wanted them to be cloud-based and have a mobile app so you can access your data at any time, from any place.
We looked for accounting systems that have timesaving features, such as automated bank feeds, automatic payment reminders, and online invoicing and payment acceptance. We also looked for software with comprehensive, customizable, real-time financial reporting, as it is crucial to monitoring and understanding your business finances.
Best Accounting Software for Small Business of 2020
It’s great to have a list of software, but how do you identify which is the right one for your business? Here are a few things to keep in mind when you’re searching for accounting or bookkeeping software.
Identify your needs.
Do you need a platform that allows you to track inventory, or are receipt-tracking and sales tax more direct concerns? Please make a list of your accounting needs and prioritize them from least to most important.
Before you start researching solutions, agree upon a goal number of needs, your chosen software will meet. You can be flexible here, but it’s easy to get distracted by the bells and whistles of a product that solves for 18 needs you don’t have.
Be honest about your budget.
Before you embark on the research phase of the process, identify how much you can afford to spend on accounting or bookkeeping software. Once you know how much money you have budgeted, try not to spend too much time evaluating software that’s outside the realm of possibility.
Budgets often have some wiggle room, but make it a rule that if a solution is more than 25% over your set budget, you’ll walk away.
Research for features that meet your needs.
It’s easy to get starry-eyed about features. But if you find yourself considering software that specializes in providing accounting services for global teams — and you only conduct business in Australia — you might find yourself paying for a lot you don’t need.
Don’t get distracted. Return to your list of prioritized needs and evaluate only the software that meets the majority of those needs.
Intuit QuickBooks Online
Receipt capture, 24/7 chat support, and integrations with PayPal, Shopify, and Square make this a crowd-pleasing small business software. All plans allow you to track income and expenses, send invoices and receive payments, run reports, send estimates, track sales and taxes, and capture and organize receipts. More advanced plans allow you to track inventory, track time and even run full-service payroll.
QuickBooks Online is the best overall accounting software for small businesses of those reviewed. Not only do the majority of small business accounting professionals use QuickBooks Online, but there are also endless online training resources and forums to get support when needed. All accounting features can be conveniently accessed on one central dashboard, making bookkeeping more fluid and efficient.
Intuit’s QuickBooks Online has been the most common accounting software used by small businesses and their bookkeeping and tax professionals. The software is cloud-based and can be accessed through a web browser or through the mobile app.
After the 30-day free trial, the four options for subscription plans include Simple Start at $25 per month, Essentials at $40 per month, Plus at $70 per month, and Advanced at $150 per month. Typically there is a significant discount offered for the first few months, and some accountants are able to offer wholesale pricing to small businesses, as well.
The monthly subscription for this software can be upgraded as a business grows, and there are many customization options with the mobile app that can be used to receive payments, review reports, capture an image of a receipt, and track business mileage. For businesses looking for a payroll solution, QuickBooks Payroll fully integrates with QuickBooks Online.
Each plan offers more advanced features like inventory management, time tracking, additional users, and budgeting. Most service-based small businesses will find that Simple Start meets all of their needs. For product-based small businesses, Essentials or Plus will have more options for inventory and customizations. The Advanced subscription is a new offering and provides robust financial reporting that is powered by Fathom. Fathom is an elite online financial report analysis tool used by many large companies all over the world.
While FreshBooks provides an excellent user interface, no one has quite been able to replicate the magic formula that QuickBooks has stumbled upon. For many people, QuickBooks is the name in accounting software; they are certainly one of the most prominent forces in the whole industry. There is a reason that the QuickBooks name has become synonymous with small business accounting, it’s because their software ticks all the right boxes and provides an exceptional user experience.
As a cloud-based solution, QuickBooks can be accessed from any device with an internet connection. However, there are dedicated apps available for mobile platforms that enable you to manage your account while on the go with ease. It is often the case that the mobile apps these businesses offer aren’t as good as their web-based interfaces. However, QuickBooks is the exception, and the QuickBooks app is the best one that we have used.
Of course, given how much weight the brand name carries and the quality of the service that they offer, QuickBooks charges a premium price compared to its competitors. For any small business that can afford the asking price, QuickBooks is all but guaranteed to handle whatever tasks you throw at it. However, if you are working on a strict budget, then QuickBooks might be overkill when you consider the cost of entry.
Two things that QuickBooks doesn’t provide, and which might be a deal-breaker for some businesses, is inventory tracking and payroll features. There is some integration with third-party apps, so this might not be an issue for some businesses. However, if you will need these features, then you should check compatibility beforehand.
All plans allow integration with third-party apps such as Stripe or PayPal. QuickBooks Online’s app store breaks down all of their apps by function and provides helpful examples of the benefits of each app.
Xero is the best in our review for micro-businesses that are looking for straightforward accounting software. This software has a clean interface and also fully integrates with a third-party payroll service. Businesses can collect payment online from customers through Xero’s integration with Stripe and GoCardless.
Xero was founded in 2006 in New Zealand and now has over two million users worldwide. This accounting software is popular in New Zealand, Australia, and the United Kingdom. Xero has more than 3,000 workers and is growing rapidly in the U.S., as well.
Xero offers three monthly subscription options and a full-service payroll add-on: Early at $9 per month, Growing at $30 per month, and Established at $60 per month. The full-service payroll option is offered through Gusto and is an additional $39 per month, plus $6 per employee. The company offers a 30-day free trial and a promotion for 50% off for two months.
The Early plan limits usage and only allows entry for five invoices or quotes, five bills, and reconciliation of 20 bank transactions per month. This limited plan may be suitable for a micro-business with high-ticket transactions, but only a few per month, such as a consulting or small service provider. Both the Growing and Established plans offer unlimited invoices, bills, and transactions. The only difference between the two is that the Established plan has additional features like multi-currency, expense management, and project costing. All three plans offer Hubdoc, a bill and receipt capture solution.
Small business accounting website Xero has strengths in many areas, like account reconciliation, data imports, inventory management, and project tracking. Recent improvements in areas like reports, projects, and document management make it one of the top choices for today’s small businesses.
Zoho Books is an excellent choice for cloud-based small business accounting, with an exceptional interface, an attractive price, and a rich set of tools. Its limited payroll offering may cause some users to look elsewhere, however.
If you send out recurring invoices, need time tracking capability, or run a subscription model business, FreshBooks could be ideal for you. You can even see the exact location a customer opened your invoice — to avoid those pesky “I never got it” excuses. They integrate with many business applications and provide you with a single dashboard to manage your finances and accounting. Regular secure backups are included, and a mobile app allows you to keep track of your business at all times.
The most crucial accounting need for most service-based businesses is invoicing. FreshBooks offers more customizations for invoicing compared to other accounting software. Its primary function is to send, receive, print, and pay invoices, but it can also take care of a business’ basic bookkeeping needs as well. This accounting software makes it easier for service-based businesses to send proposals and invoices, request deposits, collect client retainers, track time on projects, and receive payments.
Founded in 2003 in Toronto, FreshBooks started as just an invoicing software. Over time, more features have been added and FreshBooks now has over 300 employees. There are four different plans, and businesses can get a 10% discount if they choose to pay yearly, rather than monthly. Additionally, FreshBooks offers a 60% off discount per month for six months. The four plans are Lite at $15 per month, Plus at $25 per month, Premium at $50 per month, and Select, which is a custom service with custom pricing.
The main difference between the four plans is the number of different clients that are allowed to be billed per month. In the Lite plan, up to five clients can be billed per month. In the Plus plan, up to 50 clients can be billed per month. In the Premium plan, up to 500 clients can be billed per month. The Select plan does not have a limitation on the number of clients that can be billed per month. It costs an additional $10 per month for multiple team members to use the accounting software and it costs an additional $20 per month for the advanced payment feature, which allows users to charge a credit card in real-time or set up a recurring credit card charge for a client.
There are many third-party app integrations available, such as Shopify, Gusto, Stripe, G Suite, and more. A unique feature of FreshBooks is that invoices can be highly stylized and customized for a professional look and feel. FreshBooks is a great tool for budgeting out projects, sending estimates or proposals, and collecting customer payments.
FreshBooks doesn’t impose any draconian limits on the user in the way that Xero does. In fact, one of our favourite aspects of FreshBooks is how simple it is to use. The interface is as user-friendly as possible and makes it simple and straightforward to generate customized receipts from your smartphone, tablet, or laptop. You only need the most basic plan, w
hich costs $10 a month, to benefit from the full range of features that FreshBooks offers.
However, FreshBooks’ plans do come with limits on the number of clients that you can keep stored in your address book. You can send as many invoices as you like to each client, but you can only store the records for 5 at a time unless you upgrade to a more expensive plan. Like Xero, this means that the lower-tier plans on offer from FreshBooks are better-suited to freelancers that are just starting out or businesses that have just opened their doors. As your business grows, you will want to upgrade to one of the more expensive plans that provides support for 50 – 500 clients.
Not only does Freshbooks make it easy to generate and manage invoices, but it is also an excellent tool for tracking your finances over time. With the press of a few buttons, users can see detailed breakdowns of how much money they have been bringing in, how much they have been spending, and what sort of profits they have been taking home. Users can easily adjust these reports to cover whatever time period they desire and easily compare their performance over time.
Sage is one of the best-known accounting solutions. It is popular with sole traders, small businesses, and accountants. You can use Sage to manage your business’s cash flow, sales, and taxes. It also makes reporting much smoother and more streamlined. It is a multi-function solution that satisfies a number of needs for businesses of all sizes.
The platform also offers a number of more advanced features for when you are ready to scale up your business. These include inventory management, credit card processing, and module-level security.
There are mobile apps available for a range of devices and operating systems, including Android, Apple, and Blackberry. Sage also integrates seamlessly with other business productivity suites, such as Microsoft Office and Adobe Reader.
Because Sage has been a market leader for many years, it’s often the first choice for businesses, but it can be challenging to use the accounting system if you have no previous experience. However, if you want an accounting package you can use straight out of the box, Sage is a good choice.
Wave is an ideal accounting software platform for a service-based small business that sends simple invoices and doesn’t need to track inventory or run payroll. For many freelancers or service-based businesses, Wave’s free features will cover all of their accounting needs and are the best free software in our review. At year-end, accountants can pull the necessary reports from Wave to prepare a business’ tax return.
The Wave was founded in 2010 and is based in Toronto. The company has over 250 employees and was recently purchased by H&R Block. The foundational accounting features that most small businesses need, such as income and expense tracking, financial reporting, invoicing, and scanning receipts, are all included with this free software. These features can be accessed online or on the mobile app. Customer payment processing and payroll are considered premium services that cost extra, but all of the bookkeeping, invoicing and reporting features are completely free.
Wave makes its money on its payment gateway. To process payment from a customer, Wave charges 2.9% plus 30¢ per transaction for Visa, Mastercard, and Discover, and 3.4% plus 30¢ per transaction for American Express. These fees are slightly higher than other accounting software. Additionally, to process an ACH payment, rather than a credit card, Wave charges 1% per transaction with a $1 minimum fee. This is unique to Wave, as the majority of accounting software does not charge a fee for ACH payment processing.
Wave offers two payroll plans as an add-on service. The first plan is $20 per month plus $6 per employee or contractor. In this plan, Wave will process payroll and prepare payroll tax calculations, but the user is responsible for manually completing payroll tax forms and submitting tax payments. The second plan is $35 per month plus $6 per employee or contractor. In this plan, payroll is full-service, which means that all tax filings and payments are completely managed by Wave. This full-service payroll option is only available in 14 states.
You can’t beat getting something for free. When it comes to software, free software often comes with a lot of caveats and or embedded adverts. But we’re happy to report that this isn’t the case with Wave. Wave is a truly free accounting solution that small businesses can benefit from enormously.
Despite not charging anything to access the service, Wave immediately presents its users with a user-friendly dashboard and slick interface that makes navigating the many features on offer as easy as could be. Many of the features that Wave offers are gated off as premium features in competing apps, so it’s nice to see them being offered free of charge here.
You can also use Wave to manage multiple businesses, which is ideal for any freelancer who has a couple of side gigs as well. For example, if you moonlight as an Amazon seller when you aren’t making money from selling your drawing services, you can use Wave to manage both accounts in parallel.
How Does Accounting Software Work?
Once a business’ bank accounts and credit cards are synced with the accounting software, transactions will appear in a queue and can be classified into the categories found on the business’ chart of accounts. After selecting the proper category, transactions begin to populate the business’ financial statements. Business owners can run a financial report in seconds to review profitability, compare revenue and costs, check bank and loan balances, and predict tax liabilities. Having quick access to this financial information gives business owners the power to make important decisions.
Additionally, many accounting software allows third-party application integrations. For example, suppose a business owner uses a point of sale (POS) system to capture sales transactions. In that case, the POS system could potentially integrate with the accounting software to record specific transactions, sales tax liabilities, sales by subcategories, and more. In a service-based business, a time tracking application could integrate with the accounting software to add labour to a client invoice.
How Did We Choose Accounting Software for Small Business?
We looked at nineteen accounting software companies with specialized products for small businesses before choosing our top five software options. We considered cost, scalability, ease of use, reputation, and accounting features. Reputation was a key consideration because the longer a company has been around, the more likely that any technological glitches have been resolved, which ensures that a company’s important financial information will be reported accurately. Scalability was the next most important consideration because as a company grows, its accounting needs grow as well, and transferring financial information to new software can be tedious. Finally, ease of use and collaboration for business owners, employees, and accountants was considered because all users need to be able to access and review the financials at the same time.