Running a small business often means wearing many hats — sending emails, paying suppliers, invoicing, crafting workflows, and building financial reports. All these are must-dos, in addition to actually delivering the job that customers or clients pay for.
Of all the extra tasks small business owners have on their plate, none are quite as important as accounting. Solid accounting practices keep your business in top financial shape and help you make better decisions, while dropping the ball on accounting can cause business collapse or trouble with the IRS.
Thankfully, small business software solutions are making it easier to outsource tasks to technology. These accounting tools help business owners to track accounts receivable and payable, pay sales tax and be amply prepared come tax time.
Here is your complete guide to what accounting software does for small businesses and why it’s so important.
What is small business accounting software used for?
Managing business finances, as most small business owners will have experienced, is not as easy as it sounds. You need to budget, track expenses, pay suppliers, categorize transactions, and keep detailed, accurate books. Just a few days without updating your bookkeeping and the job becomes a mountain of work.
Accounting software makes life easier for small business owners. Instead of doing everything manually, you can put various to-dos on autopilot. In fact, industry data shows that nearly 75% of accounting tasks can be automated with software.
Most software also have easy-to-use interfaces, making it simple to carry out tasks like bookkeeping. Speaking of which, there can be some confusion between accounting software and bookkeeping software.
Bookkeeping software vs. accounting software
The easiest way to understand the difference is to think of bookkeeping as the basic and accounting as the advanced. Bookkeeping software is used for data entry and storage — e.g., logging revenue and expenses. The best bookkeeping software will make that process smoother than, say, a spreadsheet. You can run double-entry accounting: managing incoming and outgoing expenses and payments for better oversight.
Accounting software is like the upgraded version of bookkeeping software. Accounting software should have the same functionality — data entry and storage. In addition it gives you more analytics and actionable accounting features, like forecasting and cash flow analysis.
Bookkeeping and accounting software both reduce the amount of time spent on data entry. Users can simply sync business bank accounts and credit cards. Automation takes uploading out of your hands. For the purpose of this article, we will focus on accounting software.
Why accounting software is important for small businesses
Oversight helps you to plan, spot potential issues, identify strengths and prove business viability. With this information, you can confidently make investments, ask for loans and predict what your tax requirements will be.
Here are seven features that make accounting software so impactful for small business owners:
Bank and credit card syncing
Syncing your bank account and credit cards with your accounting software is the greatest timesaver that accounting software can give you. Removing manual input of financial data gives you back hours of your working life to focus on other important business tasks.
Invoicing software is an important feature of your accounting platform. It means that once the payment is made, it’s automatically registered as paid. With your bank and credit card synced, and your invoice logged as it’s sent out, your accounting system will pick it up once paid. No data entry is required from you once the invoice is sent. Most solutions will include templates.
By adding your invoices to your software solution, you are able to have a view of your accounts receivable. This means the amounts owed to the business. Overview of your accounts receivable is helpful for financial reporting.
Accounts payable is essentially expense tracking: all of the invoices or expenses that the business is due to pay. Your accounting software can make it easier to manage these by putting them in the system. Adding due dates and having this chart of accounts easily viewable helps you prioritize payments and not let any fall through the cracks. Registering this information also allows you to assess your profitability based on your incoming and outgoing payments.
Online payment collection
Most accounting software tools will have features that allow you to collect online payments from customers. This makes it easier for customers to pay their bills, which helps you secure payments in a timely manner.
There are a few benefits to shared access that are both within and outside of your organization. Internally, you can share access with any team members that may send invoices to clients or are responsible for paying company bills. Outside of your business, you can share access with your bookkeeper, accountant, and tax professionals to make their life easier, saving them time and saving you money that would have been spent on their time.
Financial statement preparation
Your accounting software can help you easily prepare balance sheets, profit and loss statements, and cash flow statements. With all of your financial data in one system, the analytics capability lets you create complex reports quickly.
What factors to consider when choosing accounting software for small businesses?
There is quite a broad range of accounting software solutions available to small businesses. What industry you’re in and how many employees you have will determine what features you need, but it’s also important to consider the following.
Ease of use
Yes, the features matter, but if you can’t figure out how to use the system, you may not get the greatest benefit from it. If you need a system that’s user-friendly, it’s important to assess this before selecting your solution.
Most newer solutions offer cloud accounting, so they can be accessed anywhere through any device. Still, you’ll want to check if it’s mobile-friendly. Is there a mobile app? Does it work on both iOS and Android? Then, of course, does this matter for you?
Additional users would include your internal staff. This is important if you have multiple people invoicing clients. It’s also important that the software enables access for your tax professional or accountant, which is important come tax time.
Adding all of your financial information into your accounting software is a time-consuming process. There is a level of commitment that comes with that, and it’s likely you won’t want to change once you have a system in sync with your finances. For this reason, it’s really important that you find an accounting solution that will remain viable if you’re planning to grow your business. Look for those that have upgrade options and no limits on features.
At a minimum, most businesses will probably want to integrate their accounting software with their payment processor and POS system. If you can integrate with your POS, all of those bank transactions can be added in real-time automatically. Other helpful integrations include payroll services, CRMs, and more.
Before you even look at accounting software options, it’s worth making a list of what features you need. Do you need unlimited users? Multi-currency? Inventory management? Built-in payment processing? Software integrations that connect with existing products? With your list, you can better qualify which solutions cover your accounting needs.
How much to budget for small business accounting software?
What you spend will depend on what you need. If you’re a retailer, e-commerce business, or restaurant with complex inventory requirements, your budget is going to need to be higher to meet all those needs. If you’re a services provider, such as a software development business, with just a few full-time staff and fairly straightforward incoming and outgoing payments, your budget would be lower.
While pricing is definitely a factor to consider, it’s more important to weigh up what value the solution will give your business. Accounting software does bring an inherent value that improves your profitability. Pricing shouldn’t be the only deciding factor.
Most accounting software subscription fees are under $20 per month and then increase with add-ons.Learn More
Best accounting software for small businesses
With your needs listed out, here are the best small business accounting software solutions to explore:
Quickbooks Online, by Intuit, has long been the favorite accounting software used by small businesses, as well as bookkeepers and tax professionals. Quickbooks Online accounting software is cloud-based, accessible via desktop and mobile app, from wherever there is an internet connection.
- Inventory management
- Time tracking
- Additional users (Essential and up)
- Customizations (Essential and up)
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.
Quickbooks Online offers a 30-day free trial and four subscription plans thereafter: Simple Start ($25 per month), Essentials ($40 per month), Plus ($70 per month), and Advanced ($150 per month).
- Integration with third-party apps, including Stax for payment processing
- Mobile app
- Favored by accounting professionals
Upgrades are required for additional users
Xero is an accounting software provider that has a first-class, user-friendly interface to make actions as intuitive as possible. It’s a rather simple system, which is perfect for smaller businesses that just need a sturdy, cloud-based solution with third-party app integrations that can build out the capabilities of the platform.
- Bank reconciliation
- Multi-currency (Established)
- Expense management (Established)
- Project costing (Established)
Xero offers a 30-day free trial and a promotion for 50% off for two months. Afterward, there are three monthly subscription options: Early ($11 per month), Growing ($32 per month), and Established ($62 per month). They also offer a full-service payroll option through Gusto, which is $39 per month, on top of the subscription cost and attracts a further $6 per employee.
- Integration with third-party apps, including Stax by Fattmerchant for payment processing
- Can collect payments online through Stripe and GoCardless integrations
- Payroll integration with Gusto
- Third-party app marketplace
- Mobile app
- Simple inventory management
- Limited reporting
- Limited customer service
- Fees for ACH payments
Another notable mention is Sage 50cloud. Sage has been around for a long time and works well for established businesses that need generous customizability. Unlike other solutions mentioned, Sage is Windows only. But its integration with Microsoft 365 makes it a hybrid solution: It’s hard-drive-based but shares information, via the cloud, with other applications. If you’re a Windows user with high customization needs, Sage could be a good option, but it has a very involved setup process, and it’s not very user-friendly. Hence it’s just an honorable mention for us.
Best accounting software for freelancers and solopreneurs
For service-based freelancers and businesses, the following high-value solutions could meet all your accounting software needs:
FreshBooks is the most flexible solution for invoicing, suiting service-based businesses in particular. This solution really comprehensively covers bookkeeping needs and invoicing customizations.
- Send invoices
- Receive payments
- Print invoices
- Pay invoices
- Send proposals
- Request deposits
- Collect retainers
- Track time
Freshbooks has four plans: Lite ($6 per month), Plus ($10 per month), Premium ($20 per month), and Select, a customizable solution with pricing based on the customizations. The price for all plans can be discounted for businesses that pay annually (10% off). They also have a starter deal for 60% off each month for the first six months.
- Intuitive interface
- Third-party app integrations
- Advanced invoicing features
- No inventory management
- No payroll service
Wave is another platform that suits service-based small businesses that don’t have inventory to track or needs for payroll. It also has a free starter plan that covers most needs for freelancers, including easy reporting for accountants to prepare tax returns.
Features (of the free plan)
- Unlimited collaborators
- Unlimited bank and credit card connections
- Unlimited invoices
- Automated payment reminders
Wave pricing starts at free. They do this because they make money through payment processing. If you want a payroll add-on, this is between $20 per month and $35 per month, depending on which state you live in.
- Great value
- Limited features for bigger SMEs
- Limited scalability
Another notable mention for freelancers or service-based small businesses is Zoho Books. If you already use Zoho as your CRM, it could be a good option for convenience. It does fall down when it comes to payroll. The time tracking feature is only limited to projects, and there are additional user limits that have kept it out of the main list.
Getting the most from your accounting software
Whether you’re a business that transacts in person, manages inventory, or deals in project management, it helps to have a solution that integrates with your payment processor and POS. These integrations ensure your accounting solution is comprehensive, covering the entire breadth of your business’s financial requirements.
For that reason, Stax recommends Xero and Quickbooks Online. To learn more about comprehensive accounting software solutions, contact our team today.
Learn more about Stax and how we integrate with your accounting software.