Bookkeeping software for small business: what it is and why you need it
As a small business owner, you know that every penny counts. That's why it's important to track your expenses carefully. By understanding how much is being spent on certain items, you can budget more effectively and ensure you have the resources needed to grow your business.
Hiring an accountant is always an option (sometimes, it’s the only option). However, for many businesses, bookkeeping software can be more convenient as it allows you to handle most of your accounting needs in-house. This article explains what bookkeeping software is and why you need it. Scroll to the bottom if you only want our recommendations!
What is bookkeeping software?
Bookkeeping software is a type of software that helps business owners track their income and expenses, as well as manage their tax compliance. This type of software eliminates the need for manual entry of receipts or employee reimbursements and can help you with tax compliance by automatically generating tax filings.
When/why do small businesses need accounting software?
1. You’re not getting good offers on business products, particularly trust products
Information about your business - especially detailed financial information found in bookkeeping records - helps you get better offers from providers. As we discussed here, providers are less likely to offer you trust products (i.e., products that require the seller to trust the buyer) if they can’t access accurate and up-to-date information about your business.
Bookkeeping software improves the chances you get low-interest rates on loans, low premiums on insurance, and low merchant fees on POS systems by making your financial history more transparent and reliable in the eyes of business providers. Being able to produce real-time reports (profit and loss statements, cash flow statements, and balance sheets) quickly does more for your business than you realize.
2. You’re experiencing growth
When you're just starting out, spreadsheets can be useful, especially for budgeting and planning your company's finances. However, as your business grows and operations become more complex, things can get out of hand.
For example, there may come a point when you need more than one person to manage your accounts, such as when you hire an accountant or assign a team member to handle transaction records, reports, and payment authorizations. Bookkeeping software features like multiple device access and user restriction ensure that only those with the relevant permissions can access your company's financial information and helps to manage workflows more effectively.
3. You’re wasting time on repetitive tasks
According to a 2018 survey by Clutch, 25% of small businesses still record their finances on paper. Sorting through paperwork on your own and juggling multiple spreadsheets can make basic accounting tasks (tracking invoices or cash flow projections) very tedious.
Administrative functions like inventory management, transaction processing, and billing customers are often repetitive and can be a major time suck. With bookkeeping software, you can automate most of these activities. This allows you to spend more time developing your business rather than flipping through papers and spreadsheets. Bookkeeping software keeps all your financial information in one place.
4. You’re making errors
Let's assume you manually input all of your invoices into a spreadsheet. You'll need to track several data points: date, customer name, invoice number, and invoice amount. Then, once the payment is finished, you have to go into your spreadsheet again to record the transaction. That's a lot of information to enter, which leaves room for error.
Keep in mind that mistakes have ripple effects throughout a spreadsheet. If you make a mistake with one of the inputs, for example, by entering an incorrect digit or a missing comma or decimal point, your spreadsheet will use that data to miscalculate other computations.
Minor errors here and there add up and become consequential. If you have a bad picture of your financials, it can lead to poor decisions (overstocking inventory) or missed opportunities (tax savings).
Recommendations
Quickbooks Online
QuickBooks Online is a robust software package with over 650 connectors, strong mobile apps, and tax help. There are four pricing levels ranging from $25 to $180 per month. More expensive plans include more users, in-depth reporting, and priority attention, including a dedicated customer success agent. No credit card information or contracts are required, and you can cancel the service anytime.
Pros:
- Wide variety of features, including unlimited invoices, live bank feeds, and automated reports
- Over 650 integrations
- Allows for tracking miles with phone GPS
- Advanced plans have inventory tracking and project management features
Cons:
- Advanced plans are expensive
- Cheaper plans only have between 1-5 user permissions, depending on the plan
- Advanced plan customers receive priority attention, putting low-budget businesses at a disadvantage
- Occasionally hard to use, as some features are hidden in settings and difficult to find
Best for:
- Businesses looking for a comprehensive accounting solution that packs numerous features into one platform
Wave
Wave accounting is a robust bookkeeping software for small businesses and individual contractors. Wave accounting is entirely free. With a Wave account, you can access all built-in features plus unlimited users. The only additional expenses are payroll, money transfer, and expert bookkeeping services. Users can keep personal and business expenses separate, which is good news for freelancers or side hustlers who do not have a separate company bank account.
Pros:
- Free plan does not limit to a certain number of invoices, customers, or transactions
- Ability to track personal and business spending
- No ads
- User-friendly and easy to navigate according to reviews on G2 and Software Advice
- Positive customer reviews on sites like G2,
Cons:
- No budgeting, inventory tracking, and project management features
- Limited integrations
- Phone and chat support are only available for customers that pay for credit card processing or payroll services
Best for:
- Small businesses on a budget, freelancers, and side hustles
Freshbooks
FreshBooks is a user-friendly accounting program that started out as invoicing software. According to its website, FreshBooks' program may help customers save up to 46 hours each year on their taxes. There are three different pricing plans available, starting at $15 per month and going up to $50 per month. Most features are included in all packages, but the more expensive packages can handle more billable clients.
Pros:
- Very simple and easy to use, with little to no accounting jargon
- Strong invoice features with customizable options, including due dates and discounts
- Has a built-in proposal/project management feature
- Highly rated customer support, per several review sites. Emails are typically answered within 90 minutes, and phone calls are answered by a customer service agent within three rings
Cons:
- Only supports one user. Each additional user costs an extra $10 per month
- Missing some features you find in other accounting software, such as built-in payroll
Best for:
- Businesses that send out recurring invoices or have a subscription model
Sage Business Cloud Accounting
Sage accounting software was originally developed for small businesses. It's now cloud-based and may be tailored to your industry, company size, and demands. It will recommend custom accounting solutions based on your needs and is now used by over three million firms. Sage has two pricing plans: $10 per month and $25 per month. As usual, the more expensive plan offers more features, such as cash flow analysis and accounts payable, as well as unlimited users.
Pros:
- Covers basic accounting features such as expense tracking, accounts payable, a chart of accounts, and reports
- Advanced plan allows for unlimited users
- Good live support chat
- Currently offers 70% off for six months
Cons:
- Not as many integrations (only 60) as other software
- The basic plan does not include built-in time tracking, payroll, or project management features
Best for:
- Businesses looking for an established provider that offers basic features at a reasonable price
At Hansa, we can recommend the right accounting solution for your business or side hustle. Reach out to info@withhansa.com and get a free consultation (in English or Spanish) with a Hansa expert.
