The Best Accounting Software for your U.S. Business - Erin Armstrong

Erin Armstrong - Business Coach - Virtual CFO - Blog - The Best Accounting Software for your Small Biz2017 UPDATE: please note this article and section was written in 2016, and while much of the information is still relevant, my latest review can be found HERE

Last year, I did a side-by-side comparison of the most popular U.S. accounting software systems for U.S. small businesses. While some of my original post is still relevant, a couple of the softwares I reviewed changed significantly since reviewing.

So what’s the best accounting software for small business?

Before diving in, please know that instead of an exhaustive feature comparison chart, I will focus on the main advantages and disadvantages of each program that will make a real difference to business owners in terms of their daily business accounting. I‘ll try to show not only what functions are possible, but how easy different functions are to use.

I am a Certified ProAdvisor® for QuickBooks® and QuickBooks Online®, and a certified advisor for Xero and FreshBooks software. I have worked with hundreds of small businesses and solopreneurs either keeping their books, setting up their accounting systems or consulting. So all of my expressed opinions come from on-going, extensive, real-world experience.

Also, this is a lengthier blog post with an emphasis on the technical details. For casual readers or anyone who just wants to get to the bottom line, click here.

Let’s get started!

QuickBooks Online:

QuickBooks Online is a cloud-based, online accounting software application. First launched in 2000 to meet the growing trend towards cloud computing and 24-7 access to data online, it had a lot of annoying deficiencies until… 2015!

Back in 2013, Intuit rebuilt QuickBooks Online from the ground up so that it became more mobile & app friendly and more competitive with Xero’s growing popularity. But it was not until 2015 that they their online application became way more reliable, less buggy, and more preferable to QuickBooks desktop versions for most small business’ needs.

The Good:

If you want to use an online accounting software system, QuickBooks Online is probably your best option (remember, I’m talking U.S. businesses only). With this application, you can feel confident that your accounting records are safely backed up as well as accessible from any computer, smart phone or tablet. Another benefit is that you don’t need to use the same computing platform (Windows or Mac) in order to share QuickBooks files. If there are Mac users and Windows PC users in the same office, all of them can access QuickBooks Online files equally easily. Whew!

QuickBooks Online can also sync with a large number of different apps, which allows users to do some amazing things (such as automatically importing detailed e-commerce sales & credit card payment data, using smart phones for time-tracking when out of the office, and even generating data for employee reviews). Three particularly useful features in QuickBooks Online are automated invoicing, automated receipts, and automated reporting. These features allow users to set up recurring invoices that will be emailed to clients on set dates, automated receipts that get generated when the client pays the invoice, and automated emailed reports emailed on recurring dates of your choice. (FreshBooks and Xero also offer recurring invoicing.)

Other cool features? If you’re like me and love keyboard shortcuts versus clicking with a  mouse, working keyboard shortcuts are abundant! Reporting has also improved. In fact, I’ve been able to run every report I’ve needed to (and the reports I like to run are way more detailed than the everyday user) through customization features (which hasn’t always been the case). I also LOVE their newer “undo” in the reconciling area (this was a big complaint of mine in the last review). Additionally, the “exclude” option when accepting/importing transactions is a great help when trying to get transactions (such as deposits) to match statements, etc.

However, the hands-down reasons I would choose QuickBooks Online over other cloud-based software is that you can reconcile the accounts which is a GAAP expectation. Reconciliation is crucial for identifying errors, discovering fraud, creating accurate reports and reporting accurately for tax purposes–it’s a big deal. Xero says you can reconcile in their software but you can’t truly (skip to the Xero section for details), and FreshBooks does not offer reconciling at this time. Within QuickBooks Online, you also are able to enter journal entries, and if you find many of your transactions need to be reclassified, accounting professionals can easily batch reclassify.

Erin Armstrong - Business Coach - Virtual CFO - Optin - Quickbooks Online Tips Sheet

 

The Bad:

Almost all my complaints from last year have been removed, however there are a few things to consider before immediately jumping onboard QuickBooks Online. The first is with regards to whom you bank with and also applies to FreshBooks & Xero software. I work with a range of client banks—I’ve synced everything from large commercial banks to small credit unions with QuickBooks Online. Out of 30+ banking institutions (several of these are very small regional credit unions), I have run into syncing problems with two medium-sized banks. I believe the syncing issue is not on QuickBooks Online’s end, but with the bank’s personal infrastructure. These banks will say it’s a QuickBooks Online problem (or Xero or FreshBooks), but frankly these online accounting applications work amazingly with several tiny credit unions. So I believe the problem really has to do with the banks—these same banks also have consistent problems with their online websites. So, if this is a question for you, I’d suggest that you touch-base with your banking institution before you make the move and ask if they allow syncing with QuickBooks Online, and then with due diligence, ask the same of QuickBooks Online (about your banking institution). If I were banking somewhere that didn’t sync well, I’d move to another bank. This may sound harsh, but besides it prohibiting easy use of QuickBooks Online, a bank’s inability to sync makes me wonder about the bank’s security, infrastructure, and ability to adapt.

Another consideration for businesses considering moving to an online accounting software is the amount of transactions your business has. Syncing has become very quick; however, if you have several thousands of transactions per month, there can be issues syncing and matching the data. For instance, I’ve seen a few coffee shops that have synced QuickBooks Online with Square to accept payments. While this seems like a great time-saver, it can actually take a huge amount of time to process if you are dealing with a large number of daily transactions (such as a successful coffee shop), because each transaction has to be matched with the bank deposit. It’s doable, but the more transactions you have, the more time it requires of the person keeping your books. In the coffee shop situation, generally journal entries of what happened in Square is a more efficient way to go. However, if your business has less than 100 transactions per day (as do some of my clients using the ZapStich/Pipemonk e-commerce app), then this shouldn’t be a problem for you.

Most of the complaints and negative reviews about QuickBooks Online come from resistant accountants (in 2015 there are still far more accountants resistant to the idea of online accounting than those that have adapted), or business owners who previously used QuickBooks desktop and expected the interface to be identical (in other words, they are upset that there is a learning curve).

QuickBooks Online Cost:

QuickBooks Online subscriptions start at $15/mth and go up to $50/mth. Most businesses will need at least the $24/mth plan.

The Bottom Line:

You should consider using QuickBooks Online if:

  • Your business needs the flexibility and security of a cloud-based accounting system
  • You want to save time (the automatic pulling-in of transactions saves a LOT of time)
  • You want to share easy access to parts or all of your accounting with team members
  • You would like to use QuickBooks, and use both MAC & Windows computers with your team members
  • Your business does not have thousands of transactions per month

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You should probably stick with an on-premise QuickBooks system if:

  • Your business has thousands of transactions per month (makes it more difficult to reconcile, though you could certainly reconcile with thousands)
  • Your business’s financial institutions do not integrate with QuickBooks Online

QuickBooks desktop versions (Pro, Premier, and Mac):

Up until 2015, there was a definite reason that most accounting professionals used desktop versions of QuickBooks: it was the industry standard and other accounting software just didn’t compete. While QuickBooks Pro, QuickBooks Premier, and QuickBooks Mac have slight differences between each other, they all share the same basic features and functionalities.

The Good:

In terms of pure functionality, QuickBooks desktop software offers more options for customization in reports than any other accounting applications. The other top accounting applications have many standardized report options (such as Profit and Loss, Balance Sheet, or Accounts Receivable Aging reports). While these standardized reports have and can be manipulated, they can’t compare with the flexibility that you get from the customized reporting options in QuickBooks desktop software. Why are customized reports important? Because they give you the exact information you need for your specific business or industry. Whether you need to track or compare sales to specific customers, product or service profitability, the payroll liability flow, payments made within a specific time period for a specific type of expense, loan re-payments made to vendors or shareholders, etc., QuickBooks desktop is your best bet.

The other advantage of QuickBooks desktop software is that it has been the industry standard for so long that most accountants are more familiar with this software than any of the others. While you hopefully can find an accountant who is comfortable working with another software, this might be an additional step that business owners want to avoid.

The Bad:

Let’s start with the obvious—if you use a desktop version of QuickBooks, you will have to keep your QuickBooks file on a single computer. Larger companies often store their QuickBooks files on local servers, allowing multiple people access to the same file from different workstations. For small businesses, however, setting up a local server is probably not worth the time and effort—especially since users still wouldn’t be able to access files from offsite. Also, since QuickBooks files aren’t hosted on remote servers, they are not automatically backed up. (Users can schedule regular backups with QuickBooks desktop versions, but they won’t have all of the data retrieval options available with cloud-based applications.) Another potential drawback for some clients is that QuickBooks desktop versions will not auto-sync with online bank or credit card accounts.

Another strike against QuickBooks desktop software is its interface. While QuickBooks’ layout continues to improve every year, QuickBooks Online, Xero and FreshBooks each have more intuitive interfaces. With QuickBooks desktop software, you will need to budget a little more time to learn how to use the system (assuming you’re a newbie).

And… here’s the truth: the world is moving toward online accounting. You’re not going to have the option to use QuickBooks desktops versions too far down the line.

QuickBooks Desktop Costs:

QuickBooks Pro, starting at $189.99
QuickBooks Premier, starting at $339.99
QuickBooks Mac, starting at $189.99
(Intuit only supports the latest 3 versions of software, so you should expect to buy a new version every 3 years—that is, as long as desktop versions are still offered.)

The Bottom Line:

You should use QuickBooks desktop software for your business if:

  • Your business has more than 1000 transactions per month (easier to reconcile than the online version)
  • You want the most reporting options
  • You want to use a specific version where the language matches your business (for instance, the Non-Profit or Contractor versions)
  • You want to use what most accountants still consider the gold-standard

You should consider moving to an online accounting system if:

  • Your business has fewer than 1,000 transactions per month
  • You want an accounting software that is intuitive and easy to learn
  • You need to access your file from different computers or devices

 Xero:

Like QuickBooks Online, Xero is a cloud-based, online accounting software application. Xero is based in New Zealand, and was released in the United States in 2012. Xero is geared specifically toward small business owners, promising them an accounting system that makes sense to non-accountants and is “beautiful.” Yes, “beautiful.” They hands-down get the marketing award.

The Good:

Like QuickBooks Online, Xero provides the obvious advantages of a cloud-based accounting application: automatic backups; easy access from a multitude of different devices; syncing with over 400 different apps (more than QuickBooks Online or FreshBooks); and automated invoicing for ongoing clients.

Xero differs from QuickBooks Online in that it is designed for small businesses that work closely—and regularly—with accounting professionals. Xero offers the best options for collaboration within a single file.

The Bad:

Xero is designed as more of a bare-bones application that can sync with 3rd party apps for additional functions. As a result, there is a long list of features that Xero lacks (some big ones are job costing, time tracking for contractors, and automated transactions/functions). While you can find 3rd party applications for some of these missing features, some of these really should be within Xero itself. It’s also very limited in the way of basic data organization and reporting functions. As mentioned earlier, QuickBooks Online has fewer options for customized reports than QuickBooks desktop. Xero, in turn, has far fewer options for reports than QuickBooks Online. Xero gives you several basic options for running an Income Statement, Balance Sheet, Aged Payables, Aged Receivables, etc., but you can only manipulate a few factors on any one of those reports. Xero also doesn’t allow users to organize their Chart of Accounts by making sub-accounts, which is a basic feature in both QuickBooks desktop and QuickBooks Online. In addition, because Xero does not allow users to hide or delete many of its default categories, any reports that you run are probably going to contain many more line items than you actually need. The end result is that most reports generated by Xero will contain at least some unnecessary, extraneous information.

Xero was designed for small business owners who intend to work closely—and regularly—with accounting professionals for their bookkeeping. While this arrangement works for many small business owners, for the ones who want to do all of their own bookkeeping, Xero might not be the best fit. Ironically, the reason for this is that Xero tries so hard to be user friendly that it actually creates more confusion for users who don’t have a firm grasp of accounting. For starters, Xero tries to use non-technical terms within the application in order to make it easier for non-accountants to understand. The problem is that they do this in a confusing and inconsistent way. For example, invoices are sometimes referred to in the application as “money coming in” and sometimes as “invoices,” and bills are referred to both as “money going out” and “bills.” Probably the biggest example of misleading terminology that Xero uses is its “reconcile” function. In accounting, reconciling means comparing and matching your accounting records with your official monthly statements from your bank or credit card company. It also involves making occasional adjustments to your accounting records to ensure that they are 100% accurate and in agreement with your official bank statements. (If your business is ever audited, that’s something the IRS will want to see.) With Xero, the reconcile function allows you to do the comparison part—by importing bank and credit card transactions—but it does not allow users to resolve any discrepancies between their files and the official statements that they receive from their banks and credit card companies. As anyone who has used any accounting software knows, errors will occur when importing bank or credit card transactions, such as transactions entered twice, missed days, etc. So with Xero, users are left with discrepancies in their file that get recorded as “Rounding.” There is a complicated work-around for resolving rounded discrepancies, but someone has to be really familiar with the Xero in order to do this. Finally, the process for tracking sales tax payable with Xero is very confusing and requires several extra steps. For all of these reasons, if business owners want to use Xero for their bookkeeping, they need to be working with an accounting professional who is certified in Xero and familiar with Xero’s confusing terminology and reconciling process.

Finally, when you need to accept or un-reconcile a transaction, you have to manually click to undo each transaction (in QuickBooks Online & QuickBooks desktop, you can grab multiples and click once).

Xero Cost:

Xero subscriptions start at $9/mth and go up to $70/mth. Most businesses will need the $30/mth plan.

The Bottom Line:

You should consider using Xero if:

  • Your business needs the flexibility and security of an online accounting software system
  • You will be working closely with an accounting professional (an accountant or certified bookkeeper) who is certified with Xero
  • You are not a U.S. business (as you can’t truly reconcile & all U.S. business accounts should be reconciled)

If you want a cloud-based accounting application, you should probably still use QuickBooks Online if:

  • You need more customized reporting options than Xero offers
  • You want to do the bookkeeping yourself (without regular help from a Xero-certified accounting professional), and you want support! (there is no phone number to call for help with Xero)
  • You are a U.S. business

FreshBooks:

FreshBooks is a cloud-based, online accounting software application that was first launched in 2003. A small business owner who was frustrated by the lack of good invoicing software applications available created it. It’s seen a surge in popularity in the last few years among small business owners.

The Good:

Out of all of the accounting software options reviewed, FreshBooks still has the best invoicing features. Basically, they look the best – try it for free when you click here. My clients who do their invoicing through FreshBooks tend to receive payments much quicker (we’re talking 1-3 weeks faster) than sending them via other software systems. You can set up payments through PayPal, Stripe, Authorize.net, and many more, which gives both you and your clients more options (though you can also use these w/ apps with other platforms). FreshBooks also syncs with a variety of different apps (although less than Xero or QuickBooks Online), which can help users improve their invoicing and time-tracking capabilities.

The Bad:

Many U.S. consultants promote FreshBooks as the solution to small business accounting because it’s easy for them to do. Unfortunately, this is not the case. FreshBooks does offer superior invoicing features, but it is not a full accounting software system, and your business will not be able to keep all of the accounting records it needs simply by subscribing and setting up an account with FreshBooks. FreshBooks might be a good choice for your business if you plan on using it for invoicing or time-tracking. Just realize you will need to use an additional accounting software application in conjunction with FreshBooks to get a full picture of your business’ finances.

FreshBooks lacks a number of basic accounting features. Let’s start with the fact that you can’t reconcile any account. As discussed earlier, reconciling means comparing and matching your accounting records with your official monthly statements from your bank and credit card companies. It also involves making occasional adjustments to your accounting records to ensure that they are 100% accurate and in agreement with your official bank statements. (If your business is ever audited, that’s something the IRS will want to see.) FreshBooks assumes that when users import bank and credit card transactions into their files, their accounts will be accurate. As mentioned earlier, however, errors will occasionally occur when importing bank and credit card transactions, such as transactions entered twice, missed days, etc. FreshBooks does not allow users to reconcile their accounts, so there is no easy way to correct these different errors and discrepancies. In 2015, FreshBooks added journal entries, which is GREAT—but who wants to have to make little corrections with a journal entry? Without putting in a journal entry to correct any discrepancies, the end result would be that users couldn’t run accurate reports that can be used for tax or investor purposes. For example, if your company runs a Profit & Loss report using FreshBooks, there’s absolutely no way to guarantee that this report will be 100% accurate without being able to reconcile your company’s accounts.

Another major feature that FreshBooks lacks is the ability to create accurate Balance Sheets, and use liability and equity accounts. Balance Sheets are crucial to all businesses, because you need to take into account equity, liability, capital contributions, draws, etc., in order to get a clear picture of how your business is doing. In 2015, FreshBooks added a feature that would allow you (or presumably your accountant) to enter information into a “Balance Sheet,” but this report is deficient, as basically those numbers have to be calculated outside the program.

Another failure—and perhaps my largest beef with FreshBooks—is that FreshBooks as an accounting software assumes every debit from your bank or credit card accounts should be categorized as an expense. This ignores the fact that some payments should be categorized as liabilities (such as equipment rental), owner’s draws (money taken from the business by the owner for personal use), payments to zero-out payroll liabilities owed, payments toward sales tax payable, repayment of business loans received, etc. If you are forced to classify something that is not an expense as an expense, this can definitely throw off your Profit & Loss report. Again, you can make journal entries now, but that can only correct so much without liability & asset options.

FreshBooks Cost:

FreshBooks subscriptions start at $19.95/mth and go up to $39.95/mth.

The Bottom Line:

You should consider using FreshBooks if:

  • Your business plans to use it primarily as invoice software
  • Your business plans to use it in conjunction with a full accounting software application
  • You want a better invoicing option than other applications offer

So What is the Best Accounting Software for Small Business?

Cloud accounting is the way of the future.

I’ve known it, the world knows it, most accountants who are still resistant to it know it, but we’ve been waiting for all the bugs to be worked out…

Prior to 2015, I thought QuickBooks desktop was still the best software option.

QuickBooks Online is the winner!

But, as of early 2015, I’ve hands-down recommended QuickBooks Online to the majority of my clients (and would recommend it for the majority of U.S. small businesses). Simply put, QuickBooks Online is a dynamic accounting software application and has fantastic mobile accessibility. With detailed and customizable reports, easy user sharing, no visible lag time, and automatic backups, it’s a superb choice.

Erin Armstrong - Business Coach - Virtual CFO - Optin - Quickbooks Online Tips Sheet

If QuickBooks Online has so many advantages, should you even consider using QuickBooks desktop software?

The answer is yes—if you have the right type of business. If you have thousands of transactions per month or if want to use a specialized version (like the Non-Profit or Contractor version) at this moment, that’s only offered on QuickBooks desktop.

If you want to use Xero, go ahead, but here are the drawbacks:

  • Limited options for generating different kinds of reports
  • Very poor data organization (e.g., no sub-accounts)
  • Confusing—and sometimes misleading—terminology
  • Limited ability to reconcile accounts

On FreshBooks…

FreshBooks doesn’t offer the ability to reconcile accounts, which means that it cannot produce accurate Profit & Loss or Balance Sheet reports. Additionally, FreshBooks classifies all debits from your accounts as expenses, when in fact they might be liabilities, owner draws, etc. Your business might consider using FreshBooks for invoicing and time-tracking (FreshBooks has the best invoicing features of all of the applications examined). But it is important to realize that FreshBooks is not a complete accounting software system, and needs to be used in conjunction with an accounting application that can produce accurate and complete reports.

2017 UPDATE: please note this article and section was written in 2016. My latest review can be found HERE.

So over to you:

What has been your experience with these softwares? Any favorite or surprises?

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