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Updated: March 27th, 2020
Click here to read A Beginner’s Guide to Cloud-Based Accounting Software (Part I)
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*|
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.
|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
|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
|1. Freemium model: free accounting and invoicing tools, paid payroll|
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
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
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.
Michael Jones is a Senior Editor for Funding Circle, specializing in small business loans. He holds a degree in International Business and Economics from Boston University's Questrom School of Business. Prior to Funding Circle, Michael was the Head of Content for Bond Street, a venture-backed FinTech company specializing in small business loans. He has written extensively about small business loans, entrepreneurship, and marketing.