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40 to 46 percent of small business owners and executives consider bookkeeping and taxes the least enjoyable part of running a business. Bookkeeping (day-to-day financial tracking) and accounting (building financial statements and drawing insights) can be expensive, complex, time-consuming, and the source of countless administrative headaches. Despite the cost and frustration of traditional bookkeeping methods, some studies conclude that small businesses have been more hesitant to move to cloud-based solutions for accounting, than for any other business operation. This guide will help you understand existing solutions and decide whether cloud-based accounting software could make your business more efficient.

The bookkeeping/accounting solutions landscape

As a small business owner, you have several options for handling your bookkeeping:

Manual Software Hiring
By hand Traditional desktop solutions Part-time local bookkeeper
With Excel Spreadsheet Cloud-based software Part-time cloud based bookkeeper (Ex: Bench)
In-house bookkeeper or accountant

With a 46 percent usage rate, traditional desktop software dominates in the small business sphere. One fifth of small business owners still rely on manual methods.

Accountants and software: A match made in heaven

Business owners tend to value their accountants highly. Entrepreneur.com ranks accounting/taxes as the #1 task entrepreneurs should outsource to professionals. Business owners and executives agree that accountants are the most important professionals for small businesses, superseding attorneys and bankers.  So does cloud-based software threaten the role of accountants? Quite the opposite. In fact, accountants play such a large role in encouraging small businesses to adopt cloud software, that software companies often market directly to accountants.

Why have accountants championed cloud-based software? They list not worrying about software updates/maintenance, business continuity/quick disaster recovery, and improved productivity among the biggest benefits. Replacing the drudgery of data entry and manual reporting with automated solutions and real-time collaboration, lets accountants focus on giving sound business advice to their clients. Cloud-based bookkeeping gives business owners more of the control and flexibility they seek, and gives accountants the freedom to do more satisfying, higher-level work.

What exactly is cloud-based accounting software?

If you use your bank’s online banking platform or store files on Google Drive, you’re already familiar with the cloud. It is a system that enables the storage of data and software online, rather than in your computer’s hard drive.

Many cloud-based accounting solutions are designed for non-accounting professionals. To get started, all you need is a few days, at most, to familiarize yourself with the system. The more experience you have with websites and Internet-based software, the less time it will take you to master the system.

What cloud-based accounting software does

Like desktop accounting software, cloud-based software handles your basic bookkeeping and accounting functions. While there are many options on the market, the main players all perform  the same basic functions: tracking accounts payable and receivable, invoicing, customer and vendor profiles, bank synchronization and reconciliation, bill management, financial reporting, and cash flow snapshots. Many also offer payroll, inventory, quotes, and other services as an add-on, or as part of the package.

What accounting software options are out there

The most talked-about cloud-based accounting solutions are Intuit QuickBooks Online, Xero, and Wave. Each option has a different pricing model and feature set, that makes it appropriate for some businesses, but not others. This explains why ratings for all three tend to be inconsistent, across various reviewers. Competitors include FreshBooks (which focuses on invoicing and is very popular among freelancers and sole proprietors), Zoho Books (lacks payroll integration), KashFlow, NutCache, and FreeAgent. More advanced and expensive solutions include Intacct, NetSuite, Financial Force, and Sellsy.

Intuit QuickBooks Online commands 89 percent of traffic, with Xero and Wave at almost 5 and 4 percent, respectively.

Which solution is right for you?

As long as you choose an option that suits your business, switching to cloud-based software should make the financial management of your business much easier. Some questions to ask yourself as you compare alternatives include:

  • What is your budget for accounting?
  • How many invoices do you create every month?
  • Does the software need to scale with your business?
  • How many users need to access the system?
  • What reports do you need, and to what degree will customization be required?
  • Do you need payroll services? How many employees do you have?
  • Do you want inventory solutions within your accounting solution?
  • What other software are you already using that you’ll need to integrate with?
  • Do you use a smartphone for business?

Once you know which features are most important to you, shop around. (We’ve done the research on the three most common options for you.) Then give the most promising contender a free trial run. Your accountant and your schedule will thank you.

Are you among the 20% of small business owners who still do bookkeeping manually, or the 46% who rely on traditional desktop software? Some studies show, that small business owners are more hesitant to move to cloud-based solutions for accounting than for any other business operation. Many are concerned about security or simply don’t know where to start.

This review of three of the most popular solutions for small business, is a simple introduction to the world of cloud-based accounting software. QuickBooks Online, Xero, and Wave are all extremely easy to use and have received awards and high ratings for innovation and excellence. They are representative of a range of options small business owners have when it comes to online accounting solutions.

Online software is only going to become more prevalent in accounting; the majority of large businesses have already adopted it. Before we dive into the three contenders in the online accounting space, let’s compare the different options small business owners have in bookkeeping and accounting.

Manual Desktop Online Software Hired Professional*
Pros 1. Free

2. Gives you an intimate knowledge of your business

3. Less time to learn if you are already familiar with accounting basics

1. One-time purchase with additional upgrades 1. Relatively cheap

2. Often scalable

3. Easy to use

4. Monthly subscription model

5. Real-time view of your finances

6. Collaboration with other users

7.Automatic backups and free updates

1. Peace of mind

2. Can offer advice; keep you from IRS penalties

Cons 1. Security risks: theft, disaster, loss

2. Time-consuming, easier to make mistakes

3. Human error

1. Only accessible on one computer, requires manual transfers

2. Requires updates and maintenance; Backups can be pricey and complex

3. Requires some investment of time to learn

1. Requires some investment of time to learn 1. Expensive

2. Possibility of human error

*With a professional accountants does not preclude using accounting software. Accountants benefit greatly from the real-time collaboration enabled by cloud-based software, the ability to automatically record and reconcile bank statements, and generate reports. An accounting professional can take advantage of the insights and efficiency offered by software to transition into a more advisory role.

Intuit QuickBooks Online

  • Website: intuit.com/online
  • Cost: $12.95/mo. for 1 user, $26.95/mo. for 3 users, $39.95/mo. for 5 users
  • Story: Intuit founded in 1983; QuickBooks online launched in 2004; updated version released in October 2013
  • Target: Serves over 1M businesses; dominates US market (about 80% of cloud-based software users)
  • Security: 128-bit SSL encryption, servers hosted in two Tier 4 protected data centers protected, routine penetrative testing, external security audits, user data backed up every few minutes
Pros Cons
1. Many more accountants certified to work with QBO than any other software

2. Good contact records

3. Good transaction forms

4. Customizable report templates

5. Comprehensive payroll support

6. Easier to use than QuickBooks Desktop

7. Integrations with 100s of apps for a huge variety of needs

1. Windows and Linux platforms not supported (only web-based and Mac OS X)

2. No multi-currency feature

3. QBO doesn’t have all the features of the Desktop line; not an equivalent of QuickBooks Pro

4. Doesn’t have full functionality in mobile apps

5. Lack of automated features like payment reminders

6. Payroll and payments are pricey add-ons

Xero

  • WebsiteXero.com
  • Cost: Between $9-70 per month
  • Story: New Zealand company founded in 2006
  • Target: Micro and small businesses (1-20 staff); dominates market outside U.S.
  • Security: User data is SSL encrypted, servers are protected from unauthorized access, routine third-party security audits and testing, customer data backed up daily to an offsite location, record of excellent uptime numbers=
Pros Cons
1. Share info with accountants, automatic bank feeds save time, no software upgrades or servers to pay for, great customer service

2. Most innovative; new product updates every 3-6 weeks

3. 450+ third-party apps, including PayPal, Vend, and Expensify

4. Mobile solutions for on-the-go accounting

5. Unlimited users

6. Fixed asset tracking

7. Inventory support

1. Can handle only a limited number of transactions

2. Payroll limited: only up to 10 employees, only available in a few states

3. No time billing

4. Limited app functionality

5. Slow email support, no phone support

Wave

  • Websitewaveapps.com
  • Cost: Freemium model
  • Story: Canadian company launched in 2010
  • Target: Business with <10 employees
  • Security: 256-bit SSL encryption, servers in safeguarded facilities, protocols certified by TrustE & Thawte, subject to third-party testing, user data regularly backed up off-site
Pros Cons
1. Freemium model: free accounting and invoicing tools, paid payroll

2. Multi-currency

3. Accepts all major credit cards and offers payment processing

4. Personal finance tracking and budgeting tools

5. Clean and intuitive interface

6. Active development and new features

1. Slow

2. Not as many features or as much customizability as other options

3. Ads in free account

4. Paid payroll add-on
Paid credit card processing add-on

4. No inventory management

5. No fixed assets

6. No recurring transactions

7. Pay for live support

Conclusion

QuickBooks Online suits SMBs with moderately complex needs for functionality and integration, looking to scale. It does not have all the functionality of QuickBooks Pro and does not have great mobile apps.

Xero is like QBO’s hip, innovative, international brother. It offers multi-currency support, a huge and growing number of integrations, fixed asset tracking, and better automation of functions like categorizing transactions. It’s challenging QBO but has a long way to go, especially in payroll.

Wave is focused on the needs of microbusinesses, freelancers, and sole proprietors: low/no cost, basic integrations, and simplicity. It would not be a good fit for a business looking to scale, needing lots of integrations, or wanting inventory tracking.

Most small businesses would benefit from trying one of these easy-to-use solutions.

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