If you are a small business owner, you know how important it is to keep track of your income and expenses. Tracking the financial state of your business is necessary not just for tax reporting purposes, but also so that you can grow your business over time. You have to know how well the business is doing (or not doing) in order to make wise decisions.

So how do you actually track income and expenses? Some people with very small operations can get by with using several spreadsheets. While this can work, it definitely requires a lot of maintenance. Unless you create all kinds of formulas in your workbook, you won’t be able to generate reports like you can with accounting software. Accounting reports give you the historical data you need about your business’ financial performance. Many people use spreadsheets because they think that accounting software is too expensive or complicated to use. There only used to be a few choices for accounting software, and now there are many options to fit every business and budget.

Most accounting software will automatically import transactions from your bank accounts, saving you a lot of time on data entry. These transactions will still have to be categorized or coded to put them in the right place in your books. Once the transactions are in the right place in your books, you can run reports to show you total income and expenses, account balances, and total money owned, and owed by the business. Over time these reports will provide you with historical data on the financial performance so that you can make decisions about things like where to cut back expenses, expand operations, add new products, or increase prices.

What software should you choose? The choice that immediately comes to mind for most people is Intuit QuickBooks Online. It is a solid option for a large percentage of business owners, and the one that is most familiar to many people. But it is important to know that it is not the only option. A quick Internet search for “accounting software for small businesses” will turn up a dizzying number of options. So how do you choose? Most accounting software will offer a basic level of very similar features and then more advanced features that not all users will require.

You need to consider your business needs. Almost all software will connect to your banks and automatically import transactions. All accounting software will run basic reports.

Do you need to pay vendors and bills?

Run payroll?

Import large batches of invoices?

How many users need access?
Do you need to track income and expenses for different locations?

What is your budget?

When you find some options, read through the list of features to make sure it can do what you need it to do. Most software has different subscription levels, and not all features will be available at all price points. When you are starting to research specific software, read more than one article that rates accounting software. When you start to see the same software being listed in multiple articles, those are good places to start your research. Popular programs that frequently show up in the “Best of Small Business Accounting Software” lists are: Zoho Books, FreshBooks, QuickBooks Online, Xero, and Wave. The current monthly cost of the programs just listed ranges from free to $200, and the features vary as widely as the prices. This is hardly an exhaustive list of programs. There are TONS of other options.

Choose one that will work for you long term. It is easier to get started with a more complex software that your business can grow into than to outgrow your software and have to convert to a new program in several years. Keep in mind that prices will continue to increase over time, so don’t start with software that is currently priced at the top limit of your budget.

Once you decide what to use, it is important to get it set up properly. If you are not sure of how to do that, contact a bookkeeper or CPA to have them set it up for you. Remember, it is much easier (and cheaper) to set up your accounting properly from the beginning than to clean it up later.

Questions? Comments? Want to weigh in on your favorite software? Leave a comment below.