Accounting software is essential for small business owners because it helps them stay on track of their business transactions.  Having a clear picture of profits, expenses, accounts receivable, and accounts payable not only helps you keep your business on track but it helps you be prepared for tax season. 

When starting out, it’s appropriate for most small businesses to use an out of box accounting software without extensive customizations.

The types of accounting software available vary according to their capabilities and price tags.  Usually, the two factors to take into account when choosing software are the type of industry your business is in and the number of employees you have.  An online business with two partners will not require the same capabilities as a restaurant owner with 25 employees. 

To help you choose the best accounting software for you, we’ve come up with a list of the top five best choices for small business owners.

Best Accounting Software

1. QuickBooks Online

Of the accounting software reviewed in this article, QuickBooks Online is the best overall software choice.  It’s used by the majority of small businesses and has an endless number of online training resources available with your subscription.  One main dashboard houses all of your accounting features for convenient access.

Pros:

  • Scalability
  • Familiar to accounting professionals
  • Integrates with third-party apps
  • Cloud-based
  • Mobile app available

Cons:

  • Upgrades are required for multiple users
  • Occasional issues syncing with banks and credit card companies

After your 30-day free trial period, QuickBooks online has subscription options ranging from $25 per month to $150 per month for advanced features.  You can upgrade your subscription over time as your business grows and customize options like payment receipts, reports, receipts, and mileage tracking.  If you need a payroll solution as well, QuickBooks Online easily integrates with QuickBooks Payroll. 

Each plan level offers more advanced accounting features for inventory management, time tracking, extra users, and budgeting.  The simple start plan will meet the needs of most service-based small businesses, while product-based businesses that need to keep track of inventory will want an upgraded plan. 

Advanced subscriptions provide more extensive financial reporting options.  All plans allow you to integrate your accounting software with PayPal or Stripe.

2. Xero

We rated Xero as the best accounting software for micro-businesses because of its clean-looking interface and full integration with third-party payroll services.  Collecting online payments is easy with Xero through Stripe and GoCardless.

Pros:

  • Cloud-based
  • Mobile app
  • Payroll integration
  • Third-party app integration
  • Simple inventory management

Cons:

  • Limited financial reporting options
  • Fees for payments
  • Limited customer service

There are three monthly subscription options for Xero with a full-service payroll add-on option.  They cost $11, $32, and $62 per month, respectively.  The payroll option is $39 per month plus $6 per employee.  They do offer a 30-day free trial.

The lowest Xero plan allows for only five invoices, bills, and 20 bank transactions per month, so it’s relatively limited.  However, this makes it suitable for micro-businesses who may only have a few high ticket transactions each month while paying very little for the software.  The other two plans offer an unlimited number of invoices and transactions, and all three offer bill and receipt capture.

3. FreshBooks

Invoicing is a key feature of accounting software for service-based businesses.  Compared to the other software options, FreshBooks offers the most customization options for sending, receiving, printing, and paying invoices while also taking care of your business’s bookkeeping needs. 

FreshBooks makes it easy to send invoices and proposals, request payments, collect deposits and retainers, track project times, and take payments.

Pros:

  • Cloud-based
  • User-friendly interface
  • Integrates with third-party apps
  • Affordable
  • Advanced invoicing features

Cons:

  • No inventory management features
  • No payroll features
  • Limitations in mobile app

There are four different plans available on FreshBooks, and they offer a 60% discount for the first six months.  They are priced at $6, $10, and $20, with the fourth plan offering custom options and customized pricing according to your choices.

Accounting Software for Your Online Business

4. QuickBooks Self-employed

For part-time freelancers or independent contractors who want to track their income and expenses in a simple format, QuickBooks self-employed is the best available accounting software.  Instead of having to dig through all your bank and credit card statements at tax time to add up income and expenses, QuickBooks self-employed does it for you.

Pros:

  • Cloud-based
  • Mobile app
  • Mileage tracking
  • Separation of business and personal expenses
  • Syncs with TurboTax

Cons:

  • Cannot quickly transfer data to other accounting software
  • Limited financial reporting options
  • Limited invoicing capabilities

There are three plan options available for QuickBooks self-employed, starting at $15 per month.  The two more expensive bundles are designed for income tax filing and allow you access to a professional accountant throughout the year and during tax season.

The mobile app allows you to track mileage in real-time and take photos of receipts to track expenses.  You can mark each transaction as either personal or business, which is a unique feature for accounting software.  If you’re a freelancer that doesn’t hold a separate bank account for business expenses, this feature was designed for you.

5. Sage

We’ve rated Sage as the best accounting software on a budget because it’s really the only unique feature of this software.  The pricing is competitive, starting at $20 per month for the basic plan, $35 for the Essentials plan, and $60 per month for the full project and inventory tracking capabilities. 

Sage One Accounting has been rebranded as Sage Business Cloud Accounting, but its design targets accounting professionals.  It doesn’t have the user-friendly interface you find with QuickBooks or Xero, but it may be a good fit for small businesses that don’t need the advanced capabilities of the other software.

Pros:

  • Thorough setup tools
  • User permission flexibility
  • Solid inventory tracking
  • Department, cost code, and project tracking
  • Automated sales tax calculations
  • Good mobile app

Cons:

  • Older interface
  • Lack of customization for reporting
  • No time tracking, purchase order, payroll, dedicated expense tracking, or add-on availability
  • Slow loading times

FAQ

Why does a small business need accounting software?

Accounting software will reduce the amount of time you spend on data entry by allowing you to sync your business accounts and credit cards with your software.  Once you have everything synced together, your transactions will automatically show up in the software in real-time.

If you use an accountant for your taxes, cloud-based software seamlessly transitions in sending your information to a professional. 

The basic functions of small business accounting software are:

  • Invoicing
  • Credit card and bank account syncing
  • Accounts payable
  • Accounts receivable
  • Online payment collection
  • Preparation of basic financial statements like profit and loss statements, balance sheets, and statements of cash flow
  • Easy access for accountants and tax professionals

How does accounting software work?

Once your credit card accounts and bank accounts are synced with your software, your transactions will appear inline in your software to be classified into the appropriate category. 

Once you select the category each transaction belongs to, the software will populate your financial statements.  This gives you quick access to your business’s profitability, revenue, costs, bank and loan balances, and tax obligations, which in turn gives you quick access to the information you need to make important business decisions.

Conclusion

Specialized software saves you time by avoiding manual transaction entry and keeps your information all in one place.  It’s organized and easily transferred to an accountant to do your business taxes.

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