If you are a small business owner, you know the last three years have been brutal. You survived the worst of the COVID-19 pandemic only to be slammed with crippling supply chain issues. Rising inflation in 2022 added to financial woes. You've had to focus more closely than ever on money coming in and going out. Small business accounting software can help you make smarter and better-informed plans for an uncertain future by organizing and automating your daily financial tasks.
We test and rate the best accounting apps for small businesses based on how easy they are to use, how much they do, and their price. Some are better for sole proprietors, freelancers, and companies with only one or two employees. Others accommodate larger and growing businesses. Below are the eight best small business accounting software applications, with explanations about what makes them different.
How We Pick the Best Small Business Accounting Software
Eight small business accounting applications scored high enough to be included in our list of the best small business accounting software. Two, Wave (free except for a $8 per month charge for scanning receipts) and TrulySmall Accounting ($20 per month), are best for microbusinesses, like independent contractors, freelancers, and sole proprietors. The other six target small businesses with at least a few employees. Each has multiple tiers of service to meet the needs of businesses that vary in size and functionality.
We rate these applications primarily based on how easy they are to use, how much they do, and their price. We also consider anything we encounter during our hands-on testing.
What Do Small Business Accounting Services Do?
Financial bookkeeping is complicated and time-consuming. Business owners find it challenging enough to cover the basics—paying the bills and tracking incoming revenue—let alone answering critical questions like, "Are we profitable, and why or why not?" Will your business have enough money to make the required tax payments on time? Should you invest in new equipment? Do you need to explore financing? Can the appropriate staff access your accounting data if they have to work from home?
(Credit: Intuit QuickBooks/PCMag)A good small business accounting service gives you information that helps you answer these questions based on the input you supply. Once you populate the service with details about your financial accounts, customers and vendors, and the products or services you buy and sell, you can use that data to create transactions that the software can, in turn, use to create insights. Instant search tools and customizable reports help you track down the smallest details and see overviews of how your business is performing. Mobile apps and websites give you access to your finances no matter where you are.
How Do You Set Up Accounting Software?
Depending on how long your business has been operating, getting started with a small business accounting service can take anywhere from five minutes to several hours after signing up for an account. Most offer free trials or a demo account and charge monthly subscription fees once you're ready to commit. Generally speaking, the more you need from an accounting service, the longer it takes to set one up and the higher the monthly payment.
Early setup involves creating an account and answering questions like what your business type is and when your fiscal year starts.
Next, you have to ask yourself whether you want access to the transactions you have stored in online financial accounts (checking, credit cards, and so on). Enter your login credentials for that account, and the software imports recent transactions, usually 90 days' worth, and adds them to an online register. This process is not as simple as it used to be. Banks have been tightening up their security (which is a good thing), so you may have to jump through a couple of security hoops to get connected. Sometimes, the connections break, forcing you to set them up again.
Would you like to let customers pay with credit cards and bank withdrawals? Then, you need to sign up with a payment processor such as PayPal or Stripe. It's also a good idea to browse the accounting software's settings. For example, do you plan to use specific features such as purchase orders and inventory tracking? You can usually turn tools on or off, which can help you either simplify the user interface or maximize the functions.
It's possible to do a minimal setup and then jump into creating invoices, paying bills, and accepting payments. All the accounting services we review let you add customers, vendors, and products during the process of completing transactions. You need to do this anyhow as you grow and add to your contact and inventory databases. You have to decide whether you want to spend the time upfront building your records or take time out when you're in the middle of sales or purchase forms. Most small business accounting services also offer the option to import existing lists from CSV and XLS files.
What's the Best Free Accounting App for Small Businesses?
Wave is the best free accounting software, although it's not as free as it used to be. It now costs $8 per month if you want the ability to scan and upload expense receipts, a feature many other small business accounting apps offer for free. Wave's core accounting features are free, and they're good enough for many small businesses. If you need payment services and payroll software, those cost extra (they always have with Wave).
Zoho Books also has a surprisingly robust free version. It's an excellent choice for anyone who already uses other Zoho software and businesses that plan to grow. Features include client management, multilingual and recurring invoicing, expense and mileage tracking, and reports. You can import bank and credit card statements but can’t set up direct connections to your financial institutions.
Which Accounting Software Is Easiest to Use?
Accounting can be complicated, and it needs to be done correctly. The companies that make small business accounting software have worked hard to make it as simple and pleasant as possible. Wave, TrulySmall Accounting, and FreshBooks are among the easiest accounting programs to use.
(Credit: FreshBooks/PCMag)Accounting professionals love to use terms like "accounts receivable" and "accounts payable" to describe the primary elements of accounting: recording and tracking income and expenses or tracking sales and purchases. QuickBooks Online and FreshBooks are still understandable if you don't use that terminology because they rarely use it. Their dashboards show a real-time overview of the financial information you need to see frequently, including charts comparing income and expenses, account balances, and invoices and bills that need immediate attention.
Creating Accounting Records for Contacts and Products
After you've entered information about your company structure, one of your next setup tasks is to add information about your customers and vendors. Some online accounting software lets you include more than basic contact details ("customer since" date, birthday, and other similar fields), which can be helpful as you develop and maintain relationships with them. You do the same thing for the products and services you buy and sell, so you can add them easily to transactions.
One of the great things about using small business accounting software is that it reduces repetitive data entry. Once you fill in the blanks to create a customer record, for example, you never have to look up their ZIP code again. When you need to reference a customer in a transaction, they appear in a list. The same goes for vendors, items, services, and employees. No more filling out card files or messy spreadsheets.
Once you have a customer record and start creating invoices, sending statements, and recording billable expenses, you can usually access historical activities within the record itself.
Record templates vary in complexity, so you need to understand the differences before you go with one accounting service or another. Some, such as Patriot Software Accounting Premium, simply let you maintain descriptive product records. Others, such as Intuit QuickBooks Online, do more, like asking how many of each product you have in inventory when you create a record and at what point you should be alerted to reorder. Next, they actively track inventory levels, which provides insights into selling patterns and keeps you from running low.
Which Transactions Do Accounting Services Support?
The most common types of transactions that a small business needs are invoices and bills, and most of the services we review support them.
Xero and Zoho Books go further by letting you create more advanced forms, like purchase orders, sales receipts, credit notes, and statements. They provide templates for them, too. All you have to do is fill in the blanks and select from lists of variables like customers and items.
(Credit: Zoho Corp./PCMag)How Are Completed Transactions Handled?
Once you have completed an invoice, for example, you have several options. You can save it as a draft or a final version and either print it or email it. If you do the latter and have established a relationship with a payment processor, then your invoice can contain a stub explaining how the customer can return payment via credit card or bank withdrawal. You can sometimes create a PDF version of the invoice, copy it, record a payment on it, and set it up to recur on a regular schedule.
Can You Manage Expenses and Bills With Accounting Software?
Accounting services pay special attention to your company's expenses—not bills that you enter and pay (though some support this), but rather other purchases you make. This is an area of your finances that can easily get out of control if you don't monitor it. So, small business accounting software separates them into expense types. Next, the software compares them to your income using totals and colorful charts.
If you're traveling and have expenses on the road, you can usually take pictures of receipts with your smartphone and upload them to your accounting app. Some accounting services attach these receipts to an expense form. Others, such as Intuit QuickBooks Online and Xero, read the receipts and transfer some of their data (such as date, vendor, and amount) to an expense form using optical character recognition technology.
Why You Should Import Transactions and Bank Balances
Daily accounting work typically involves paying bills, sending invoices, and recording payments. But you also need to closely monitor your bank and credit card activity. If you have connected your financial accounts to your accounting tool, then it's easy to do. Balances usually appear on the app's dashboard. You can also view each account's online register, which contains transactions that have cleared your bank and been imported into your accounting app (along with those you've entered manually).
You can do a lot with these transactions once they appear in a register. First, they should be assigned a category, such as office expenses, utilities, and travel. That way, you know where your money is coming from and where it's going. Every accounting solution guesses how at least some transactions should be categorized. You can change them if they're incorrect. Diligent categorization gives you more accurate reports and income tax returns.
You can also match related transactions, such as an invoice entered into the system and a corresponding payment that has come through. Again, some accounting services make educated guesses here. You can split transactions that should be assigned to multiple categories, make notes, and reconcile your accounts with your bank and credit card statements.
Creating Reports to Improve the Business
Reports are your reward for keeping up with your daily accounting and doing it correctly. Every small business accounting service has templates for numerous types of insightful output. You select one, customize it by using the filter and display options provided, and let the software pour your company data into it. It only takes a few seconds to generate a report.
There are two kinds of reports. Most are the type that any small business owner could customize, generate, and understand. They tell you who owes you money, which of your products and services are selling well, whether you're making money, which expenses and services haven't been billed yet, which customers are buying the most, and how much you owe in sales tax.
There are other reports, though, that aren't so easy to understand. They're considered standard financial reports—such as Balance Sheet, Statement of Cash Flows, Trial Balance, and Profit and Loss—and they're the kind of documents you need if you ever want to get a loan from a bank or attract investors. Small business accounting software can generate them, but you may need an accounting professional to analyze them and tell you in concrete terms what they mean for your company.
Getting Help
All online accounting services simplify the accounting process, but there will undoubtedly be times when you have questions. You can often get help via chat, email, and phone. Some apps provide context-sensitive help along the way and a searchable database of support articles.
Intuit has an option called QuickBooks Live that adds bookkeeping support to Intuit QuickBooks Online. You communicate with a dedicated bookkeeper through one-way video chat (they can't see you) or email. This individual and their team work with you on customizing your setup and monitoring your transactions so they're accurately entered and categorized for tax purposes. They reconcile your accounts and close your books at month's end to prevent errors. Plus, they're available for questions during regular business hours. Finally, they generate the reports you need so you're ready to prepare your taxes or hand them off to your accountant. Wave offers fee-based bookkeeping services but lacks Intuit QuickBooks Live's interactive quality.
What Is the Best Accounting Software for Small Businesses?
Choosing a small business accounting application is challenging. The best one for you depends on your business needs. You want the product to allow room for your business to grow, but you don't want to spend a lot of extra money on features you may never need. Most of the accounting services we reviewed are available in multiple versions, so you can start at the low end and upgrade to a more powerful edition that looks and works similarly.
We recommend reading our in-depth review of any service that catches your eye to ensure it fits your needs—and your budget.
While you're thinking about your money, you might also like to consider our reviews of online payroll services and personal finance apps.
