Solid accounting software is indispensable for small businesses. With the right accounting tools, you can automate tedious and error-prone tasks, strengthen financial management and ensure compliance during tax season. Accounting software enables accurate record-keeping, informed budgeting and evaluation of financial performance.
This guide will walk you through how to choose the best accounting software from the many products available to small business owners. Here, you will learn more about costs, key features and other factors to consider when comparing vendors and choosing an accounting solution.
What is accounting software?
Accounting software is a computer program designed to streamline a business’s accounting and financial management, automating processes such as bookkeeping, invoicing, reporting, tax preparation and more.
The best accounting software products include a range of features for small businesses, including a general ledger, modules for accounts payable (AP) and accounts receivable (AR), financial reporting and bank reconciliation. Most modern services also store data securely in the cloud, allowing remote access from any internet browser or the vendor’s mobile app.
Who needs accounting software?
All small-business owners—from solo practitioners to brick-and-mortar establishments—can greatly benefit from implementing and using high-quality accounting software. Most small businesses can’t afford to spend hours wrestling with spreadsheets and haphazard records, which are prone to human error and leave you unorganized for tax season.
To understand the value of accounting software better, consider these use cases:
- A convenience store can use an accounting program’s automated inventory tracking to reduce stock when an item is sold, eliminating the need for manual inventory counting.
- A small clothing boutique can employ its accounting software’s sales analysis tools to identify the top-selling items and predict future demand.
- A landscaper can open their accounting software app and turn a customer quote into an invoice within seconds.
- A restaurant can monitor the cost of ingredients and use its accounting program to compute profitability and identify areas for cost optimization.
- An attorney working as a solo practitioner can track their billable hours and mileage through their accounting software’s mobile app.
How much does accounting software cost?
The cost of accounting software varies depending on your business needs and the features you require. Here’s a breakdown of the usual pricing structures to help you navigate the options.
Free vs. Paid Accounting Software
- Free options: Truly free accounting software is rare, but some vendors like Zoho Books offer a basic product at no charge with limited features. Wave also provides free basic bookkeeping features with the option to add access to paid features as needed.
- Paid subscriptions: Most accounting software providers sell monthly subscription plans. These range in price depending on factors, such as the number of features and users. Often, 30-day free trials and substantial introductory discounts are available for new users.
Subscription Tiers and Pricing
- Basic plans ($15-$20 per month): These plans are ideal for small businesses and solopreneurs with simple accounting needs, such as invoicing and expense tracking.
- Midtier plans ($40-$60 per month): Midtier plans offer more robust features like inventory management, payroll processing and advanced reporting. Most small businesses with employees or brick-and-mortar establishments will likely require one of these plans.
- High-end plans (variable): The highest-tier plans are designed for larger businesses with complex accounting requirements. Pricing can reach several hundred dollars per month and custom solutions are often available.
What are the benefits of accounting software?
The main benefit of using accounting software is the ability to keep secure, accurate records of your business’s finances. These programs offer a powerful solution for disorganized small businesses or those that are less accounting-savvy, streamlining financial processes and providing valuable insights to help your company thrive.
Here are some more key advantages of using highly rated accounting software:
- Save time and effort: Accounting software automates tedious tasks like invoicing, expense tracking and report generation. You can generate and send professional invoices with a few clicks, categorize expenses automatically with a smartphone app and create insightful reports with minimal effort. This frees up valuable hours you can dedicate instead to strategic planning, customer service and growing your business.
- Reduce errors: Manual data entry is a recipe for errors, leading to inaccurate financial records and potential headaches during tax time. Accounting software significantly reduces this risk by allowing you to import bank statements, scan receipts and categorize expenses electronically. This ensures your financial data is clean and accurate.
- Gain valuable insights: Accounting software transforms your raw financial data into actionable insights. With a few clicks, you can track your cash flow in real time, analyze income and expenses by category and identify areas for improvement. This empowers you to make informed decisions about pricing, inventory management and capital allocation.
- Improve efficiency: Accounting software eliminates the need for manual data entry, repetitive tasks and paper-based systems. Furthermore, these cloud-based solutions are easily accessible and often integrate with other essential programs your business already uses. This streamlines your workflows and improves communication within your team for smoother operations.
- Boost productivity: By automating tedious tasks and providing real-time financial insights, accounting software frees you from the shackles of manual accounting. This translates into increased productivity, allowing you to focus on core business activities and unlock your company’s full growth potential.
What are the different types of accounting software?
There are several types of accounting software available for small businesses, each catering to different needs and levels of complexity. Here’s a breakdown of the most common categories.
Commercial accounting software: These programs are ideal for freelancers, solopreneurs and small businesses with straightforward accounting needs. Typically, they focus on core functionalities like invoicing and billing, expense tracking and reporting. QuickBooks, FreshBooks and Xero are several popular accounting software brands operating in this category.
Industry-specific accounting software: Some software caters to industries with specialized accounting needs. Here are a few examples of what businesses in different sectors might want to consider when comparing accounting solutions and features:
- Retail businesses: Retailers should look for inventory management tools with features like barcode scanning and purchase order optimization.
- Restaurants: Useful accounting tools for food service businesses include integrations with the best point-of-sale (POS) systems, recipe costing and menu profitability analysis.
- Construction companies: A construction business will require job costing tools, project management features and integration with payroll systems. Sage is one platform that includes many widely used construction industry features in its accounting solution.
- Enterprise resource planning (ERP): Some software services, such as Oracle NetSuite, are comprehensive business management solutions designed for larger companies with complex accounting needs. ERP programs integrate various functions like accounting, inventory, human resources and customer relationship management (CRM) into a single platform.
Cloud-based vs. Desktop
- Cloud-based model: These popular accounting solutions are hosted online, allowing access from any device with an internet connection and regular software updates. They offer a wider range of features and require a monthly or annual subscription. Introductory discounts are often available for new subscribers.
- Desktop software: Desktop accounting software, unlike its more common cloud-based counterpart, is installed directly onto your computer’s hard drive. Although it is less common today, a few vendors still offer traditional desktop software for users who prefer an offline experience. QuickBooks and Sage both sell desktop-based solutions in addition to their cloud offerings.
What are the key features to look for in accounting software?
Accounting software often includes a wide range of tools to help streamline a business’s finances, including AR and payable features, inventory management, project costing, time tracking and payroll processing. The exact features will vary based on the vendor and package you choose. However, below are a few core elements of every top accounting software service.
Invoicing
Accounting software allows you to customize invoices with detailed descriptions of services rendered, pricing information and payment terms. You can also send invoices electronically to your clients, saving you the hassle of printing and mailing paper invoices. Additionally, accounting software often integrates with online payment systems, allowing your clients to pay online within the invoice itself by clicking a link.
Recurring invoices
Sending invoices that recur automatically at specified intervals is another key feature of accounting software. The program tracks outstanding payments and even sends late payment reminders to past-due clients. This ensures steady cash flow and eliminates the hassle of manually creating and sending invoices every billing cycle.
Bank reconciliation
Bank reconciliation is a crucial process for ensuring the accuracy of your financial records. Accounting software streamlines this task by automating the comparison between your bank statements and your accounting data. You can connect your bank account to the system, allowing it to download your transaction history. The software then matches these transactions to the corresponding entries in your accounting records, such as invoices, payments and deposits.
Financial reporting
Accounting software compiles data into clear and concise reports, including income statements, balance sheets and cash flow statements. You can see where your money is coming from and going, identify areas of profitability or potential cost savings and track your business’s growth. These real-time financial insights empower you to make informed decisions about your business strategy and budget.
What factors should you consider when choosing accounting software?
In addition to ensuring the accounting software you’re looking for is capable of the above functions, you should consider several other important factors when choosing an accounting solution. These include pricing, ease of use, the number of third-party integrations available, customer service and other features, such as a mobile app.
Pricing
Accounting software providers offer a wide range of paid plans, often geared toward businesses of varying size and complexity. Evaluate which features you will require and ensure that the vendor you’re interested in has a plan that includes those features at a cost that fits your budget.
Often, pricing differs based on variable factors, such as the number of users, invoices and monthly transactions. Consider how many people on your team will require access to the software as well as how many invoices and transactions your business processes every month.
Ease of use
During the decision-making process, prioritize software with a clean and intuitive user interface that’s easy for you and your team to navigate. Look for clearly labeled menus and icons, simple navigation tools and intuitive data entry forms. If you want to access your financial data on the go, be sure to choose a product with a mobile app for added flexibility (see below).
A user-friendly interface combined with mobile accessibility will save you time and frustration, allowing you to focus on running your business instead of troubleshooting software problems.
Third-party integrations
Modern accounting software is designed to work seamlessly with other business tools you rely on daily. Make a list of the software you already use, such as payroll systems, CRMs or inventory management systems and ensure they are compatible with the accounting software you’re evaluating. For advanced users, consider software with open application programming interfaces that allow for custom integrations with specialized tools.
Customer service
Look for an accounting software vendor that offers multiple support channels like phone, live chat and email. This ensures you can reach assistance quickly and conveniently. If your business operates outside of traditional business hours, prioritize providers with 24/7 technical support. For larger businesses, consider software providers that give you a dedicated account manager and more personalized support.
Mobile app
Today, many small-business owners prefer to manage their operations on the go. A mobile accounting app allows you to access your financial data anytime, anywhere. This allows you to create quotes and send invoices on the spot, categorize expenses right after a purchase or check your cash flow while traveling. Real-time access empowers you to make informed decisions quickly and eliminates the need to wait until you’re back at your desk.
However, not every accounting program has a mobile app and not all of them are of equal quality, so keep this in mind when making a purchasing decision.
What are the top accounting software vendors?
I’ve personally examined and analyzed the following products and found them to be the best accounting software options on the market. Keep reading to find out why these solutions stand out.
QuickBooks Online
QuickBooks is the most well-known accounting software vendor for small businesses. One major benefit of choosing the QuickBooks Online product is that many accountants, bookkeepers and CPAs are familiar with the software, making it easy to obtain professional assistance. The software integrates with more than 750 third-party apps, adding to its appeal and high usability and new tools like an artificial intelligence accounting integration put QuickBooks ahead of the pack in terms of innovation.
Xero
Known for its user-friendly interface and easy-to-understand visuals, Xero is a great choice for those who aren’t accounting experts. It supports unlimited users on all plans, so you won’t need to worry about additional costs as your business grows. Xero integrates with more than 1,000 third-party business applications and users praise its robust customer service.
FreshBooks
FreshBooks excels at invoicing. The software’s capabilities include easy quote-to-invoice conversion as well as invoice tracking, customization and electronic payment. The mobile app is particularly useful for time tracking and invoice creation on the go, with the ability to add billable hours and expenses directly to an invoice. I also found the project management features valuable for service-based businesses.
Oracle NetSuite
This enterprise resource management solution is ideal for large businesses with global operations. Oracle NetSuite offers a high level of customization to ensure its solution fits the specific needs of your complex organization. It provides powerful tools for financial management and is used by more than 31,000 businesses around the world. The suite of ERP modules available includes order handling, production, supply chain management and much more.
Zoho Books
Zoho Books stands out for its automation features, allowing you to set rules for workflows and generate reports automatically. Technical-minded business owners will appreciate that Zoho boasts its own scripting language to design custom functions. The vendor also offers a free plan and multiple paid tiers, making it a budget-friendly option for businesses of all sizes.
Plooto
While not a full accounting software program, Plooto simplifies AP by offering a network of 150,000 vendors for automatic approvals and payments, streamlining your bill payment process. It integrates with QuickBooks and Xero and also offers credit card processing and document management services.
Wave Financial
Wave is a completely free accounting software with basic bookkeeping abilities. You can also create regular and recurring invoices as well as track payments. With no limits on transactions or users, it’s a solid option for startups or freelancers on a tight budget.
Sage 50
Sage is a desktop accounting software service with cloud connectivity. This is an appealing option for users who prefer to store their data locally but still want the option of remote access. Sage offers expense control features with unique cost code assignments for job tracking. I also liked that the software fully integrates with Microsoft 365.