In the old days, choosing accounting software was easy.

You picked whichever version of QuickBooks seemed like the right fit for your business, installed it on your PC or Mac, and you were off and running. Nowadays, there are more choices than anybody can keep up with (even if you read all the blogs and newsletters like we do), and most of them are cloud-based.

To help you cut through the chaos, we decided to put together a quick overview of the three systems that we feel are the leading options for small businesses right now: QuickBooks Online, Xero, and FreshBooks.

QuickBooks Online (QBO)

  • The online successor to QuickBooks desktop, the #1 selling small business accounting software of all time. Made by Intuit, the largest and best-known company in the industry.

  • QBO originally debuted back in 2001 but early versions were clunky and slow compared to QuickBooks desktop. Luckily, Intuit redesigned QBO from the ground up in 2013 and dramatically improved its design and functionality. As a result, QBO is now the most popular online accounting system for small businesses.

  • Available in three versions: Simple Start (for small businesses with limited needs), Essentials (for businesses that track time and need more accounting features), and Plus (for inventory-based businesses and customers who need advanced features like project tracking).

  • One of QBO’s biggest strengths is that it integrates seamlessly with Intuit’s other products — including QuickBooks Payroll, QuickBooks Payments/Merchant Services, and tax preparation software. For small businesses that want to keep all their accounting tools under one roof, this is a big advantage.

  • To learn more about the QBO lineup, click here: QuickBooks Online.

  • Note: In addition to QBO, Intuit now offers a lighter, simpler product called QuickBooks Self-Employed (QBSE). Long story short, QBSE is a scaled-down accounting tool designed specifically for freelancers, self-employeds, and sole proprietors. We actually think QBSE is a brilliant product, and you can read our full review here.

Xero

  • The underdog from New Zealand. Xero was started by a group of really smart Kiwis in 2007, quickly became the #1 accounting software in New Zealand and Australia, and entered the U.S. market in 2011. After many years of hard work, Xero is now regarded as the leading “QuickBooks challenger” in the small business accounting market.

  • Although much smaller than Intuit, Xero is the company that actually pioneered most of the advances in modern cloud accounting — including bank feeds, auto-coding rules, and the single unified ledger. The company has received numerous awards over the years and has been called “the Apple of accounting.”

  • While QuickBooks is still the market leader by a large margin, Xero is very popular with progressive accountants and is regarded by many as the most innovative company in the industry.

  • Even though we’re a QBO specialist, we admire Xero enormously. From an accounting point of view, it’s a beautifully-designed system that actually does many things better and more efficiently than QBO.

  • To learn more about Xero, click here: Xero.

FreshBooks

  • The upstart from Canada. FreshBooks was created by a designer in Toronto who needed an easy way to create professional-looking invoices and bill his customers online. The tool he wanted didn’t exist, so he built it himself.

  • You might not think online invoicing is a big deal, but it is — especially for self-employed professionals, creative agencies, and small firms that bill for their time. That’s who FreshBooks is designed for, and it has become a very popular QuickBooks alternative for those types of customers.

  • If you’re considering FreshBooks, the main thing you should know is that it is not a full-strength accounting program like QBO or Xero. Instead, it is primarily “invoicing software” with some basic accounting capabilities built in (namely, bank feeds and the ability to generate a basic P&L). Therefore, if you need to deal with tougher accounting issues like accounts payable, inventory, POS systems, accrual accounting, financial statements, and all sorts of other things, then FreshBooks will not be up to the job.

  • Having said that, FreshBooks is hands down the best software for creating great-looking invoices and letting customers pay you online. FreshBooks also has features that help you track time, manage projects, and create estimates and proposals — and it’s dramatically easier to use than QBO or Xero. As a result, it’s a terrific product for freelancers and small, service-based businesses that have limited accounting needs.

  • To learn more about FreshBooks, click here: FreshBooks.

Additional Resources

If you want to read more about the fascinating world of small business accounting software, here’s a nicely-written review from FitSmallBusiness. And here’s a longer review from PCMag (but beware of all the ads).