Most applications start out small and only later add features and usability improvements with new iterations. Small business accounting software, on the other hand, has evolved in the opposite direction. Products from companies like Peachtree and DacEasy and MYOB started their lives as full-blown, multiple-module, highly complex applications that were priced for the small business market in the early 1990s. The problem? They offered way more than many companies needed. They also used a lot of accounting jargon that people didn't understand, and, worst of all, they could be extremely hard to use.
Intuit changed that with its first version of QuickBooks. The program was developed for DOS, and its main menu contained only a few simple choices, including CheckBook, Invoicing/Receivables, Accounts Payable, Chart of Accounts, and Company Lists. It relied on dialog boxes, registers, empty fields, and function keys for navigation and data entry. But a check looked like a paper check blank, and the software clicked with a lot of companies that needed its simplicity.
Small Business Accounting Services Today
More than 20 years later, we have multiple versions of QuickBooks for Windows, as well as QuickBooks Online. Intuit remains the market leader, but other cloud-based applications like Xero and Zoho Accounting, which were launched on the Internet instead of making the leap from desktop software, provide similar tools and usability. There are now many choices when it comes to online double-entry accounting solutions. The problem, in some cases, is that these cloud-based accounting services have actually come full circle in terms of their evolution. That is, their capabilities have begun to rival those early, not-so-friendly but powerful DOS-based applications.
Still, at their best online accounting apps have a lot to offer, as detailed below.
- Friendly user interface and navigation. Cloud-based accounting applications—for the most part—look great. They're not as graphically rich as some types of online services, but they don't need to be. Graphics are used where it makes sense, like for displaying charts and graphs, and for invoice forms. Navigation and data entry take their cues from desktop software, using static and drop-down lists, icons and buttons, fill-in-the-blank fields, and toolbars.
- The subscription model. Desktop software was and is expensive, a few hundred dollars for a product you're probably not sure upfront that you'll end up using, and that you'll be asked to upgrade in 12 months. The online model is very much pay as you go, and pay for just the seats you need. Generally, you can sign up for a free trial and pay anywhere from roughly $5 to $70 per month for an accounting website, and you're not usually locked into a contract. Furthermore, all the upgrades built in, and your data is all backed up in the cloud. Of course, if the service (or your Internet connection) goes down, you're out of luck, however.
- Multiple versions. Some of the best Web-based accounting solutions make more than one level of service available—at different prices—so you can buy the version that most closely matches your needs. When you need more power, you can keep it in the family.
- Simple, familiar language. The principles of double-entry accounting are several centuries old. You can't get away from some of the terms and phrases that wouldn't normally come up in casual conversation, like debits and credits, general ledger, and chart of accounts. But the developers who have produced today's best-of-breed accounting sites only subject you to arcane language when it's absolutely necessary. You can't get around the fact that double-entry accounting is a complex process that must follow the rules, but these wizard-based services hide as much of the complexity as they can.
- Integration with complementary add-ons. The future of accounting lies in two areas: the cloud, and integration. SMBs that experience tremendous growth or increased complexity may need to move up to the next level of cloud-based financial management applications, like NetSuite or Intacct. But if a business just needs more flexibility and/or features in a particular area, like invoicing, expenses, or inventory management, there are hundreds of add-on solutions that can connect to services like QuickBooks Online and Xero.
- Mobile versions. Because cloud-based accounting applications support anytime, anywhere access to financial data, their developers have made at least a subset of the main site's features available on smartphones and tablets. Kashoo was the first to build an iPad app, and One Up was actually developed for mobile use and only later made available through Web browsers.
- Interactive home pages. Some small businesspeople love working with numbers, but many just want to sign on to their accounting application, do what's needed, and move on. Interactive home pages, or dashboards on these websites play two primary roles. First, they provide a bird's-eye view of your finances, with graphs, charts, and tables that quickly summarizes real-time income, expenses, and cash flow, for example, along with tasks that need attention. Second, most of these sites' dashboards contain links to working screens, so you can pay a bill or send an invoice or transfer funds between accounts—whatever needs to be done that day.
Accounting for Sole Proprietors
Even the very smallest businesses need to keep track of their money, from payroll to taxes. In fact, many operate so close to the bone that every dollar is critical. Very small businesses and sole proprietorships need accounting software at least as much as their larger counterparts. The problem is, what they need and what a bigger business needs are most probably not the same thing at all. If you're a sole proprietor and you've tried a cloud-based accounting solution aimed at larger businesses in the past, you may have found that you're paying more than you really want to for features that you don't really need. And maybe you went back to the old tried-and-true methods of keeping your books in a spreadsheet, or even in actual, literal books—made out of paper! It's easy to understand how that could happen, but it's a shame in this day and age not to take advantage of best-of-breed accounting software, wizard-based simplicity, access from anywhere, and the safety of an offsite backup.
But don't despair, there's a whole breed of online accounting tools made just for sole proprietors, and we've reviewed them. The best of them are extremely affordable and offer mobile versions, integration with major banks, quarterly estimated income tax calculations, reports that make sense for very small businesses, and more. They may not offer a ton of integration with other add-ons and corporate homepages for employee access—or a bunch of other things you don't need. The best of these services are listed in the table above, and we go into more details on the specifics of these stripped-down services in The Best Online Accounting Services for Sole Proprietors.
The Competition
For this roundup, we reviewed 14 cloud-based financial applications. Three of them are better suited to sole proprietors (as noted in the chart) than to small and medium-size businesses, since they have strengths in just one or two areas, like invoicing or estimating quarterly taxes.
The larger group contains Web-based solutions that would be suitable for more complex small businesses, companies that want an application compliant with double-entry accounting rules. Each offers a core set of features that includes a chart of accounts; customer, vendor, and item records; income and expense tracking; forms like quotes and invoices; and reports.
In addition, you can set up connections to accounts at financial institutions, download transactions, and reconcile those entries with matching ones entered in the application itself. A few of the solutions reviewed here offer true inventory tracking, and most can integrate with a payroll service.
The Right Blend
How do you determine which Web-based solution is best for your small business? You probably won't find one whose feature set exactly matches what you need. Besides, what you need right now may be more or less than what you need a year from now.
Your decision will probably be based on a number of factors, including:
- Its ability to import existing data,
- The actual recordkeeping, tasks, and data access supported,
- Its look and feel (user interface and navigation),
- The number of staff needing to log into the site and the ability to restrict pages they can visit and actions they can take,
- The site's customizability and scalability,
- The quality of mobile apps and add-ons,
- Availability and quality of user support, and
- The subscription fee.
Small business accounting is one area where there's still a lot of competition, which is healthy, but it makes your decision-making process harder. Consider the chart above and the capsule review below, click through to the full reviews for a deeper read, look at the screenshots, and take advantage of the free trials offered. What you choose now may or may not be what you need in five years, but the landscape will look different by then. Change and growth are progressing rapidly in this area, but that will be the case for a long time. So pick the best match for your current circumstances and dive in!