Accounting Software Comparison – Evaluation Criteria
By Greg Lam on September 20, 2012 in accounting, sections8 Comments
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At the Small Biz Doer I’ve been doing extensive, in-depth reviews of online accounting software in an attempt to better understand what’s the best solution for small businesses. I’ll give you a hint, there’s no one best solution for every small business. Instead, the best software for you depends on your needs and how well the software can meet them.
For the comparison of accounting software I’ve measured all contenders with the same set of standards. To make it easier for you to see what I’m looking at when doing the reviews, I’ve listed the criteria used for the accounting software comparison below.
Even though there are 26 topics below with short summaries of why they are important, you may want more help in figuring out what to look for in accounting software. If that’s the case, please download my free “How to Choose Accounting Software” guide by entering your email address in the box below.
If there are any topics you feel are missing, please don’t hesitate to tell me in the comments section at the bottom of the page. If you’re looking to get in touch, I can be reached at greg@smallbusinessdoer.com.
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Topics
- user interface
- accrual accounting
- double-entry accounting
- chart of accounts
- reconciliation
- importing and syncing data from bank
- data import
- data export
- auto entry of data
- reporting
- taxes
- document attachment
- multi-currency
- invoicing
- payment processing
- payroll
- inventory
- integration
- mobile app
- other features
- support / help documentation
- improvements
- country it’s made in
- price
- recommendation
- setup
- final words of advice
user interface
The usability of software is something that can get overlooked when strictly examining comparison charts or feature lists. There’s a difference between having a feature and having a usable feature.
The hard thing about comparing user interface is that it’s a personal thing. What one person deems a great interface another might find unusable. This is where I think trying out the software and seeing if it’s easy and intuitive to you. I realize that for some people they feel accounting software will never be easy and intuitive to them, so if that’s you, pick the one that makes you the least confused :)
User interface is an important feature. If you can’t easily use the software – whether it be because the placement of buttons and menus slows upi down or because there are too many steps in a process – then it may be not very useful to you.
Speed
The reaction time of online software is an important consideration, especially if you’re used to the responsiveness of desktop applications. It can also mean that entering information is faster in one accounting software over another because there are less steps to do the same thing.
Search / Finding Data
Being able to find your data easily is nice. This is actually quite an important feature since I find bookkeeping to be an investigative type of job. The more powerful your search capabilities, the faster you can work.
Tracking Changes / Undo Button
Being able to track what someone else has done is important for auditing and investigating how data was entered and manipulated. I use it more for those “how did this happen” (rather than “who did this”) moments, which enables me to fix these.
Another useful software function is the ability to undo a mistake or to redo something that you accidentally deleted.
accrual accounting
Accrual accounting is like the grown up bicycle, while cash accounting is like the training wheels on a child’s bike. Eventually, you’ll want to (and need) to use accrual accounting. So can the software accommodate this?
You’ll probably find that most accountants and bookkeepers don’t like software that can’t do proper accrual accounting.
I consider this a core requirement of accounting software.
double-entry accounting
Having a general journal entry window lets someone who understands bookkeeping or accounting quickly add transactions and make modifications to the books. This is an extremely essential feature that your bookkeeper or accountant would be glad to have.
I consider this a core requirement of accounting software.
chart of accounts
In case you didn’t know, a chart of accounts is a listing of all your accounts (Income, Expense, Assets, Liability, and Equity). Some software I’ve reviewed doesn’t allow you to see your entire chart of accounts on one page. Something you should look for is if you’re able to freely change and create your chart of accounts. This is a basic need for accountants and bookkeepers.
I consider this a core requirement of accounting software.
reconciliation
Reconciliation, or the process of matching transactions in your bank statement to transactions in your accounting software, is a crucial step in the bookkeeping process. This is because it verifies the data you’ve entered into your books.
I consider this a core requirement of accounting software.
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importing and syncing data from banks
Being able to sync your bank data to your accounting data is one of the promises of cloud accounting. A lot of software that’s supported by the cloud has this feature. Unfortunately, though, this automatic syncing of data doesn’t always work. This issue has more to do with the bank than the software. This being the case, your accounting software needs to be able to manually import data as well. Being able to import bank data is a big time saver, since it allows the software to semi-automatically enter data and match records for you (I say semi-automatically, since you always need to verify the data being entered).
I find the ability to manually upload bank statements to be especially crucial, since your automatic bank connection can only import data from a few weeks, to at best, a few months back. This means the majority of people will need the manual upload process to work, if only at the time they are setting up their books.
This is an important, but not necessary, feature in accounting software. You can get by without this, but it’d be unfortunate if your software couldn’t import bank statement since it can save a lot of time.
data import
Who likes manual entry? Well… no one, really. It’s the analog way to get into the digital world. More importantly, a lot of our information exists digitally, and the nice thing about digital, is that it’s easy to copy and move around. The ability to import data into your accounting software is something that is not only a nice-to-have, but increasingly becoming a must-have. Why spend hours re-creating and re-entering data (and introducing errors in the process) that already exists?
Most software imports limited data, so the ability to import data is kind of a bonus feature.
data export
Data export is a big thing for me (and I suspect, lots of other people too), since I want to be able to take my data with me in case something happens (like the software company merges, goes out of business, or I decide to use another service). It’s also good for people who like to play around with their numbers in a spreadsheet. Lastly, sometimes you want to export certain pieces of data (like say your customers) into another software application like CRM software (Customer Relationship Management).
Most accounting software can export anything that it can create reports for. There are big differences in the export features of software, so check to make sure it can export data in a way that’s usable to you.
This is an important feature for accounting software, especially if you don’t know how long you’ll use the software.
auto entry of data
There are a couple ways to talk about auto entry of data. I believe most people relate this to the ability to connect to your bank (or upload a bank statement) and have your online accounting software automatically enter all the transactions for you. Remember that it’s not going to be 100% reliable, so you’re going to have to verify each auto-entered transaction. You’re also going to want to match your documentation (your proof) to that auto-entered data as well. Auto entry data is cool when it works. The second way you can think about auto-entered data, is how much your software remembers transactions that you manually enter, like what expense account and taxes are associated with a particular vendor.
The auto entry of data is a nice-to-have feature. It’s not necessary, but when it works well, boy does it make accounting way better (and dare I say funner?)
reporting
Reporting is the end result of bookkeeping that most people are eager to see. Once you generate reports, you can finally see how much money you made, how much people owe you, how much you owe people, etc… QuickBooks has advanced reporting functions with hundreds of stock reports, with each report having the ability to be customized, filtered, and memorized. Budgeting is nice for tracking goals vs. actual performance.
Most accounting software will provide basic reports (like profit and loss, balance sheet, accounts receivable, accounts payable). Not all can do budgeting. I find that reporting needs of small businesses vary greatly depending on the type of company.
Basic reports are a core requirement of accounting software. More advanced reporting is a nice-to-have feature.
taxes
If you’re in the United States, this section is probably not much concern to you. If you’re from countries like Canada, UK, and Australia this will be of great concern to you. This is because these countries have value added taxes, such as VAT, GST, HST. Value added taxes need to be closely tracked for items sold and purchased.
Sales Tax (value added tax) tracking for both sales and purchases is a core requirement for those outside the United States (and for some people within the United States).
document attachment
Are you familiar with the terms “paper trail” or “burden of proof”? Both mean the same and they refer to the fact that you need to prove every transaction in your records. This is done most of the times through digital or paper receipts documenting your financial transaction. With this in mind, it makes sense to be able to attach this proof to every transaction, right? You can of course keep a digital or paper based record system outside of your software program, but I’ve found it incredibly useful to have the proof attached to my bookkeeping software’s record, since it now becomes very easy to double-check the document for something like a data-entry error.
This is a nice-to-have feature, but definitely not a requirement. Most accounting software doesn’t do document attachment, and those that do, only do it for certain type of transactions (such as for expense receipts).
multi-currency
Multi-currency is something that’s becoming ever more crucial in today’s business world. Many people sell to and buy from multiple countries and collect (or pay) in more than one currency.
If you deal with multiple currencies in your business, this will be a core requirement. If you don’t, and never plan to, then you could probably care less.
invoicing
I don’t think I’ve encountered any software that can’t create an invoice. Some items that you may look for in invoicing are:
- How easy it is to enter invoices and the amount of details you’re allowed to attach to an invoice
- The look of the finished invoice (or invoice templates)
- The ability to track outstanding invoices in a simple way
- Being able to duplicate or memorize invoices, so that you don’t have to re-create the same invoice many times for different customers
- Send the invoice in multiple formats and in multiple ways (PDF, HTML, excel) and (email, print, link)
Those are just a few items to look for. Some programs definitely have more robust invoicing than others, so if invoicing makes up a large part of your time with accounting software, you’d want to make sure it can do this to your liking.
Invoicing is a feature all accounting software has, it’s a core requirement.
payment processing
Payment processing is the ability to send an invoice out to a customer and have them pay via credit card, debit card, PayPal, or some type of online method.
This is a nice-to-have feature that you may or may not need. There are easy ways to live without payment processing, so this probably isn’t a deal killer feature for most people.
payroll
There’s special taxes and reporting requirements associated with payroll. Can the software handle this for you? If it can’t, is there a way to smartly input these? Being able to do your payroll through your accounting / bookkeeping software is nice if you have employees. Calculating payroll manually is doable, there are online calculators that can help you. However, the reason you want to use software for your bookkeeping is so that you donít have to do things manually.
This a core feature to some businesses, not even necessary to others.
inventory
Inventory has to be handled and accounted for in a special way, can the software handle this? Being able to track inventory is an essential function for any business that sells products that they need to keep track of.
Many businesses who have extensive inventory needs use different software for their inventory, so it’s probably not a core feature for most people. If you do inventory and you can find software that accommodates your needs, that’s a bonus for you. Accounting software that can handle inventory is limited, and of those that can do it, this feature can be quite basic.
integration
The power of software is the ability to easily share and process data across various applications. You may currently be using software for CRM, payroll, invoicing, e-commerce, etc. Whether your online accounting software can import that data may be a crucial deciding factor for you. In other cases, sometimes your online accounting software won’t do everything you want it to do, so the only way to get a feature is to integrate your online accounting software with software that provides what you want.
This is a nice-to-have feature for most people. As time goes on, and integration gets better, I suspect the add-on integration of software will become more and more important. If you think about iPhone or Android smart phones, it’s the apps that really make the phone that much more useful. This can be the case for accounting software as well, where the software is simply the platform for your entire business management system.
mobile app
It should be noted that any online accounting software can be accessed via your web browser, regardless of your device. However, when an online accounting software provider has a device specific app or a mobile version of the site, it’s designed to work well for that purpose. If you’re planning on accessing your books through a mobile device, check to see if what you’re about to buy is specifically designed for it.
Mobile apps are a nice-to-have feature, unless you mainly want to use your mobile device (smart phone or tablet) to do your bookkeeping. Most mobile apps are limited in functionality, so just because accounting software has an app, it doesn’t mean it’ll suit your needs. People are using mobile devices now more than ever to do their daily tasks.
other features
This is a section that covers features or functionalities that didn’t get their own section.
Since I can’t say what these other features are, I’d say it’s a nice-to-have feature, but maybe I missed something that’s crucial to your business that you need your accounting software to do.
support / help documentation
Customer support is a crucial feature for some users, especially those who are not as comfortable with software as others. I tend to just look for documentation that already exists, since I don’t like waiting on support to potentially help me out. I’d rather see great help / documentation than great support (although I’m sure others would have their priorities reversed). Having information that is easy to access and easy to understand can save you tons of time and frustration.
This is a nice-to-have feature.
improvements / missing features
The important thing to consider when evaluating accounting software is to see whether it has the features or functionalities you need, and to decided if you can live with (or work around) the missing items.
country it’s made in
In some ways, the country where the software is made shouldn’t matter. However, I think for accounting software, it matters more than with other types of applications. This is because the people in their own country should (and emphasis on “should”) naturally design the software to fit the needs of their local tax and accounting requirements better than software made in another country. I’ve noticed this especially when it comes to taxes and payroll.
price
Price is always an important factor for businesses. One thing I think you should consider is how much does it cost you to not pay for what you need. Or in other words, how much time (whether it’s your “free” time or someone’s paid time can you save by using the software).
recommendation
Whenever you read a recommendation, whether it be from me, your accountant, or another small business owner, just remember that the recommendation is from that person’s perspective. What’s important to them may not matter to you.
setup
Some accounting software is easier to set up than others. Some also have better documentation. If you have no clue what you’re doing, I’d see if there’s either a person that you know that can help you or that the company’s promises of an “easy” set up and of “assistance” are true. My unscientific guess is that most small business people set their accounting software up incorrectly or in a way that’s not optimal for their business.
Final Words of Advice
One thing you should do is make a list of all the needs your business has that you expect your accounting software to fulfill. It should include must-have (core), important, and nice-to-have features. This will let you better judge what’s best for you.
Accounting software is also changing at a rapid pace, so make sure to check out the most current information. Reading a review from 3 years ago probably won’t be very helpful.
If you didn’t understand a lot of the terminology used in this article, I’d recommend downloading my free “How to Choose Accounting Software” guide. I go through some basic accounting and software terminology. You can get it by going entering your email address into the box below.
This post was written by Greg Lam. He's a small biz and tech guy who's trying to make financials easier to do and understand. He's also the co-founder of the Small Biz Doer.
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Hi Greg, I REALLY appreciate these reviews you are doing! A friend of mine just gave me the name of another one, http://www.freeagent.com I thought you might like to consider reviewing that one too. Country of origin is England, but at first glance they seem to accommodate tax arrangements in other countries. Would love to hear your thoughts on that one as well.
Also, another feature I am ALWAYS interested in is if the software allows you to track your personal as well as business expenses. For example, I use my personal credit card for as much as possible because I collect airmiles. Then I make transfers from my business account to my personal account to cover the business related expenses. One thing I did appreciate about WAVE was being to do that. Me THE BUSINESS, and Me the HOUSEHOLD CEO were just 2 separate tabs in one file. I am leaving WAVE however, due to too many software bugs and unresponsive tech support. But I would like to retain that feature in whatever future financial software I choose. Can you tell me if that feature is possible in Kashoo, Xero, and some of the other programs you have reviewed?
Many thanks, and keep up the great work!
Hi Lynn,
Thanks for the kind comment. I do have Free Agent on my radar and plan on doing a review sooner rather than later.
I've recently been receiving comments and emails about software that can do both personal and business. The standard advice is to keep things separate. Much easier. Most small business people have a hard time doing it.
You can run several businesses in Kashoo and switch between them, so you could set up one account for your business and one for personal. If you treat your personal life like a business, then this may work for you. There's no integration between the two "businesses", so this may not be what you're looking for.
Xero has both personal and business accounts that you can set up. I've heard it's not perfect though. I haven't tried it myself, so can't comment more than to repeat what I've heard.
Greg, very detailed review criteria, I have gone through all of your reviews so far and it seems you like Kashoo and Xero. I wanted to get your opinion based on some criteria that I have. As a small business owner in multiple LLC's and one S-Corp I was looking to consolidate all businesses into one online accounting software solution while minimizing the monthly charges. It looks like Kashoo will allow multiple businesses but it seems as though Xero would charge you for multiple, thoughts? I have thoroughly tried Wave Accounting but it fell short in several ways, one being recurring invoices and the inability to track expenses by project or in my case by property. At the end of the year I need to be able to report income and expenses via each property. Based on this information would you recommend one or the other?
Hi James,
That's a tough one with the multiple businesses. It does add up fast! Xero gives you 15% off each additional business, but it can still rack up. According to this Kashoo support article http://support.kashoo.com/customer/portal/article… you also pay for each new business, although Kashoo is less expensive than Xero.
I've set people up on both Xero and Kashoo, so I'd recommend them both. I would suggest going with what fits your budget and which software you like to use the best. I personally enjoy Kashoo's work flow the most, but I do love Xero's reconciliation feature.
Xero does have the ability to make recurring invoices and track expenses by project (http://help.xero.com/int/#Settings_Tracking). Kashoo does not.
Sorry to waffle on the answer, but I think it really is whatever you do like best. I don't think you'll go wrong with either software.
Thanks for the reply and all the work you've done evaluating these projects, it has really saved me a lot of time. I guess in the end I'll have to stick with quickbooks desktop edition which is cheaper over the year than paying for three businesses via Xero. I believe if I just had one business then Xero might be the winner given its ability to track project costs, recurring invoices, and heavy integration with other products.
You're welcome James. Yeah, running multiple businesses is one of the disadvantages of online accounting software, where they get you for each business you run.
I may have missed this, but which handles commission tracking for multiple sales reps per client? Thanks
Hi Dee,
Do you mean which software or which feature? It sounds like you're talking about a tracking feature, which is a more advanced tool.
If this is a core need of yours, I'd definitely look into the accounting software you're favoring to see if they have that capability. I know that tracking in online software is not as advanced as say the tracking in QuickBooks Desktop.