financial business software

Accounting software helps small business owners track accounts receivable and accounts payable, have a clear understanding of their profitability, and be prepared for tax season. In the world of accounting software, small businesses can often use out-of-the-box software without requiring extensive customization. As a business grows, its accounting needs become more complex, and a custom enterprise resource planning (ERP) system is often needed.

We researched and compared 19 accounting software companies before selecting the top five best suited for small businesses. We evaluated capabilities, price tags, and industry suitability. For example, a freelancer wouldn’t need the same features as a restaurant owner. Here are our picks for the top small business accounting software programs.

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The 5 Best Accounting Software for Small Businesses of 2022

• Best Overall: QuickBooks Online
• Best for Micro-Business Owners: Xero
• Best for Service-Based Businesses: FreshBooks
• Best for Part-Time Freelancers: QuickBooks Self-Employed
• Best Free Software: Wave

Best Accounting Software For Small Businesses

• Our Top Picks
• QuickBooks Online
• Xero
• FreshBooks
• QuickBooks Self-Employed
• Wave
• See More (2)
• Final Verdict
• Frequently Asked Questions
• Methodology

BEST OVERALLQuickBooks Online

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Why We Chose It

QuickBooks Online is the best overall accounting software for small businesses of the 19 products we reviewed. Not only do the majority of small business accounting professionals use QuickBooks Online, but there are also endless online training resources and forums to get support when needed.1 All accounting features can be conveniently accessed on one main dashboard, making bookkeeping more fluid and efficient.

Pros and Cons

Pros

• Scalable
• Commonly used by accounting professionals
• Integration with third-party applications
• Cloud-based
• Mobile app

Cons

• Upgrade required for more users
• Occasional syncing problems with banks and credit cards

Overview

Intuit’s QuickBooks Online has been one of the most common accounting softwares used by small businesses and their bookkeeping and tax professionals. The software is cloud-based and can be accessed through a web browser or through the mobile app.

After the 30-day free trial, the four options for subscription plans include: Simple Start at $25 per month, Essentials at $50 per month, Plus at $80 per month, and Advanced at $180 per month. Typically there is a significant discount offered for the first few months, and some accountants are able to offer wholesale pricing to small businesses, as well. 

The monthly subscription for this software can be upgraded as a business grows, and there are many customization options with the mobile app that can be used to receive payments, review reports, capture an image of a receipt, and track business mileage. For businesses looking for a payroll solution, QuickBooks Payroll fully integrates with QuickBooks Online.

Each plan offers more advanced features like inventory management, time tracking, additional users, and cash flow. Most service-based small businesses will find that Simple Start meets all of their needs. For product-based small businesses, Essentials or Plus will have more options for inventory and customizations. The Advanced subscription is a new offering and provides robust financial reporting that is powered by Fathom. Fathom is an elite online financial report analysis tool used by many large companies all over the world.

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.

BEST FOR MICRO-BUSINESS OWNERSXero

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Why We Chose It

Xero is the best in our review for micro-businesses that are looking for very simple accounting software. This software has a clean interface and also fully integrates with a third-party payroll service. Businesses can collect payment online from customers through Xero’s integration with Stripe and GoCardless.

Pros and Cons

Pros

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

Cons

• Limited reporting
• Fees charged for ACH payments
• Limited customer service

Overview

Xero was founded in 2006 in New Zealand and now has over 3 million subscribers worldwide. This accounting software is popular in New Zealand, Australia, and the United Kingdom. Xero has over 4,000 employees and is growing rapidly in the U.S., as well.

Xero offers three monthly subscription options and a full-service payroll add-on: Early at $12 per month, Growing at $34 per month, and Established at $65 per month. The full-service payroll option is offered through Gusto and is an additional $39 per month, plus $6 per employee. The company offers a 30-day free trial. 

The Early plan limits usage and only allows entry for 20 invoices or quotes and five bills per month. This limited plan may be suitable for a micro-business with high-ticket transactions, but only a few per month, such as a consulting or small service provider. Both the Growing and Established plans offer unlimited invoices and bills. The only difference between the two is that the Established plan has additional features like multi-currency, expense management, and project costing. All three plans offer Hubdoc, a bill and receipt capture solution.

BEST FOR SERVICE-BASED BUSINESSESFreshBooks

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Why We Chose It

The most crucial accounting need for most service-based businesses is invoicing. FreshBooks offers more customizations for invoicing compared to other accounting software. Its primary function is to send, receive, print, and pay invoices, but it can also take care of a business’ basic bookkeeping needs as well. This accounting software makes it easier for service-based businesses to send proposals and , track time on projects, and receive payments.

Pros and Cons

Pros

• Cloud-based
• User-friendly interface
• Third-party app integration
• Affordable
• Advanced invoicing features

Cons

• Mobile app has limitations

Overview

Founded in 2003 in Toronto, FreshBooks started as just an invoicing software. Over time, more features have been added and FreshBooks now has had over 30 million users. There are four different plans, and businesses can get a 10% discount if they choose to pay yearly, rather than monthly. Additionally, FreshBooks often offers discounts for your first months of membership. The four plans are: Lite at $15 per month, Plus at $25 per month, Premium at $50 per month, and Select, which is a custom service with custom pricing. These are the prices without discounts.

The main difference between the four plans is the number of different clients that are allowed to be billed per month. In the Lite plan, up to five clients can be billed per month. In the Plus plan, up to 50 clients can be billed per month. In the Premium plan, unlimited clients can be billed per month. The Select plan also does not have a limitation on the number of clients that can be billed per month, but adds unique features. It costs an additional $10 per month for multiple team members to use the accounting software and it costs an additional $20 per month for the advanced payment feature, which allows users to charge a credit card in real-time or set up a recurring credit card charge for a client.

There are many third-party app integrations available, such as Gusto, G Suite, and more. A unique feature of FreshBooks is that invoices can be highly stylized and customized for a professional look and feel. FreshBooks is a great tool for budgeting out projects, sending estimates or proposals, and collecting customer payments.

BEST FOR PART-TIME FREELANCERSQuickBooks Self-Employed

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Why We Chose It

QuickBooks Self-Employed accounting software is our top choice for part-time freelancers and independent contractors who primarily want to track their income and expenses for their tax return. This software is designed for business owners who file a Schedule C on their individual tax return. 

Without keeping up with business activity using a software like this, freelancers would need to dig through all of their bank and credit card statements to add up their income and expenses at the end of each year, which can be quite daunting. QuickBooks Self-Employed will total up all business transactions automatically.

Pros and Cons

Pros

• Cloud-based
• Mobile app
• Track mileage
• Differentiate between business and personal expenses
• Syncs with TurboTax

Cons

• Data cannot be easily transferred to other accounting software
• Limited reporting

Overview

QuickBooks Self-Employed is an Intuit product with a cloud-based online interface and a mobile app. This software was created to help freelancers stay organized each year for tax season. Features of QuickBooks Self-Employed include tracking mileage, sorting expenses, organizing receipts, and estimating and filing taxes seamlessly through TurboTax.

Users can choose between three plan options: Self-Employed at $15 per month, Self-Employed Tax Bundle at $25 per month, and Self-Employed Live Tax Bundle at $35 per month. There is a 50% discount for the first three months. The two tax bundles include a TurboTax subscription for income tax filing. The Self-Employed Live Tax Bundle also gives you access to a CPA to answer questions throughout the year and during tax season. The CPA will also perform a final review of your tax return in TurboTax prior to filing. 

The mobile app makes it easy to track mileage while driving and capture photos of receipts for business expenses. Most accounting software is not designed to separate business transactions from personal transactions, but a special feature of QuickBooks Self-Employed provides an option to mark each transaction as business or personal. This is helpful for freelancers who don’t have a separate bank account for their business activity.

BEST FREE SOFTWAREWave

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Why We Chose it

Wave is an ideal accounting software platform for a service-based small business that sends simple invoices and doesn’t need to run payroll. For many freelancers or service-based businesses, Wave’s free features will cover all of their accounting needs and is the best free software in our review. At year-end, accountants can pull the necessary reports from Wave to prepare a business’ tax return.

Pros and Cons

Pros

• Free accounting, invoicing, and receipt scanning
• No transaction or billing limits
• Run multiple businesses in one account
• Unlimited number of users
• Mobile app

Cons

• Integrations only through Zapier
• Higher fees for credit cards and ACH payments
• Full-service payroll is limited to only 14 states

Overview

Wave was founded in 2010 and is based in Toronto. The company has over 250 employees and was purchased by H&R Block in 2019. The foundational accounting features that most small businesses need, such as income and expense tracking, financial reporting, invoicing, and scanning receipts, are all included with this free software. These features can be accessed online or on the mobile app. Customer payment processing and payroll are considered premium services that cost extra, but all of the bookkeeping, invoicing, and reporting features are completely free.

Wave makes its money on its payment gateway. To process payment from a customer, Wave charges 2.9% plus 60¢ per transaction for Visa, Mastercard, and Discover, and 3.4% plus 60¢ per transaction for American Express. These fees are slightly higher than other accounting software. Additionally, to process an ACH payment, rather than a credit card, Wave charges 1% per transaction with a $1 minimum fee.

Wave offers two payroll plans as an add-on service. The first plan is $20 per month plus $6 per employee or contractor. In this plan, Wave will process payroll and prepare payroll tax calculations, but the user is responsible for manually completing payroll tax forms and submitting tax payments. The second plan is $35 per month plus $6 per employee or contractor. In this plan, payroll is full-service, which means that all tax filings and payments are completely managed by Wave. This full-service payroll option is only available in 14 states.

Final Verdict

Accounting software can help small businesses with a multitude of operations, including managing their expenses and tackling tax season. But every business is different.

QuickBooks topped our list because of its scalability, its training resources, and its mobile app. If QuickBooks isn’t the right choice for your small business, you’re sure to find a good fit with one of our other options.

Frequently Asked Questions

What Does Accounting Software for a Small Business Do?

Accounting software reduces the amount of time spent on data entry by allowing users to sync their business bank accounts and credit cards with the software. Once synced, transactions will flow into the accounting software, where they can be categorized into various accounts. While most accounting software is easy to use, a general understanding of accounting principles is needed to ensure that financial reports are prepared correctly. For this reason, many businesses hire bookkeepers or accountants to maintain or review their books. Cloud-based online accounting software makes it convenient for businesses to access their books at the same time as their bookkeeper or accountant.

The most basic functions of accounting software for small businesses are:

• Invoicing
• Bank and credit card syncing
• Accounts payable
• Accounts receivable
• Online payment collection from customers
• Basic financial statement preparation, such as profit and loss statements, balance sheets, and statements of cash flow
• User access for accountants or tax professionals.

How Does Accounting Software Work?

Once a business’ bank accounts and credit cards are synced with the accounting software, transactions will appear in a queue and can be classified into the categories found on the business’ chart of accounts. After selecting the proper category, transactions begin to populate the business’ financial statements. Business owners can run a financial report in seconds to review profitability, compare revenue and costs, check bank and loan balances, and predict tax liabilities. Having quick access to this financial information gives business owners the power to make important decisions.

Additionally, many accounting software allows third-party application integrations. For example, if a business owner uses a point of sale (POS) system to capture sales transactions, the POS system could potentially integrate with the accounting software to record specific transactions, sales tax liabilities, sales by subcategories, and more. In a service-based business, a time tracking application could integrate with the accounting software to add labor to a client invoice.

How Much Does Accounting Software for Small Business Cost?

Small business accounting software ranges from $0 to $150 or more per month. Basic plans are in roughly the $0 to $40 per month range and are a great place to start. With a basic plan, a small business will be able to categorize income and expenses, send invoices, and prepare financial reports. As a business grows, most software is scalable, and the plan can be easily upgraded to meet new business needs. The more robust plans allow businesses to track inventory, prepare more customized financial reports, run payroll, and choose from more invoicing options.

Methodology

We looked at 19 accounting software companies with specialized products for small businesses before choosing our top five software options. We considered cost, scalability, ease of use, reputation, and accounting features. Reputation was a key consideration because the longer a company has been around, the more likely that any technological glitches have been resolved, which ensures that a company’s important financial information will be reported accurately. Scalability was the next most important consideration because as a company grows, its accounting needs grow as well, and transferring financial information to new software can be tedious. Finally, ease of use and collaboration for business owners, employees, and accountants was considered because it’s important for all users to be able to access and review the financials at the same time.