Do I really need an Accounting package?
This is a terrific question and one we get asked a lot, particularly by people starting up a business for the first time.
The quick answer: No! (But maybe: Yes!)
It depends on your business and your own comfort level, but for most small businesses chances are you really don’t need an accounting package.
Here’s what happens with a lot of people when they’re launching their small business: they’re getting themselves all hooked up with their office equipment, so they’ll pop into their local electronics superstore, buy a PC or Mac and a printer, get their copy of Microsoft Office, and throw in a shrink-wrapped “easy” accounting package, thinking they’ll be all set. How hard can it be?
I am Accountant by Flickr user Venn Diagram
Truth is: that accounting package is probably going to be complete overkill for the majority of small businesses. In fact, I’d go so far as to say that the entire concept of general ledger accounting is completely unnecessary in many businesses in their early stages.
The key question would be: do you want to learn how to be an accountant, or do you just want to generate bills, keep track of who owes you money, and make sure your books are in good order for tax time?
It’s all a matter of focus.
FreshBooks is built to handle the day-to-day transactions of a business without requiring sophisticated accounting knowledge. We designed it to be simple, accurate and very fast.
Our focus is on getting you paid for the work you do. So we make it darn easy to generate bills, follow up with clients, allow them to pay easily by a variety of methods, track who owes you money, and run reports to keep tabs on how your business is doing.
Accounting products, even the simplified ones, start from an entirely different point of view. Their entire vocabulary, their context is completely different. Almost all accounting systems are going to be built around all of that double ledger, cash- or accrual-based bean-counting, balance sheets and income statements an actual accountant needs.
You’re just getting your business off the ground. You’re an expert at what you do. Do you really want to learn how to do all this other “accounting” stuff yourself?
I had this conversation with a potential client earlier this week and my point, in essence, was: while you’re busy building your contracting business, you’re probably going to hand over your books to an actual accountant once year (or maybe more often) anyway.
Your accountant will need your opening and closing bank balances, by month, and will then need a bunch of other info in order to do full “reconciliations” and ensure your books are all in order for tax and general reporting purposes.
In my experience (disclaimer: I’m not an accountant, so I may well be missing stuff here) an accountant needs:
- Profit/loss statement
- Revenue by Client
- Item/service Sales
- Expenses by Category
- Summary of taxes charged
ALL of those reports are produced as standard by FreshBooks. The missing bit – monthly bank reconciliations – is the kind of info it takes me about 10 minutes to pull down from my online banking in a neat little Excel spreadsheet.
As your business blossoms and grows, it’s entirely likely you’re going to reach the point where you need something bigger. We hope that you’re successful enough that you’ll get to the point where you want to hire your accountant on fulltime as your CFO.
At that stage, you might decide you do need an accounting system that’s more complex than what we offer. When that happens, we’ll celebrate your “graduation” and you’ll be happy knowing you can export everything you need from FreshBooks. We have a lot of customers who continue to run FreshBooks in tandem with an accounting package too – that’s a great option for many people.
We like accounting packages. In fact, we integrate with a whole bunch of them. We just don’t think everyone necessarily needs one right out of the gate.
In short: it’s a really wise move to have a good accountant among your business advisors but do you really want to be one yourself?
has sent, it would stand taller than the 
11:35 am
The one feature that Freshbooks doesn’t offer, unless I’m missing it somewhere is the ability to track non-billable expenses. I love how I can move expenses directly to invoices, but what about all the others, phone/rent/etc…? If Freshbooks could somehow track this, or could integrate with another service that could, I would definitely have no reason for an accounting package.
12:36 pm
Hi Steven, thanks for commenting. Depending on how complex your needs are, you actually can track a lot of non-billable expenses in your FreshBooks account.
Expenses you log in FreshBooks are only marked as billable if you click the “Assign To Client” checkbox when you’re entering the expense. A lot of FreshBooks customers use this feature to keep track of essential business expenses, even ones they’re not going to re-charge to clients.
If the built-in expense tracking still lacks some functionality you need, you might also want to take a look art some of the third-party expense-tracking integrations listed on our add-ons page here.
Hope that helps.
7:34 pm
Let me start by saying that I’m not a fan of Quickbooks or any other Accounting Package for that matter, and I use FB for all our invoicing. That being said, FB is not an accounting package, you don’t have different accounts for expenses (cheques, credit cards), no option for Balance reports, etc. which are essential for any company to file taxes.
So every piece of software has its place, I just wish somebody would do accounting online as FB does for invoicing.
10:45 pm
Nice piece, it’s spot on but misplaced. Please please please better integrate Outright. You are nuts to propose a business doesn’t need an accounting package; it’s that Alex is right – you are insane if you use Quickbooks.
Freshbooks had a really good thing going when it was invoicing; best in the business and priced right. Now you are in bookkeeping (sort of?) and adding a bunch of partners that don’t exactly make sense and you are charging me more for it. Ummm…. Thanks, I guess? Now my invoicing is telling me I don’t need accounting, without a good suggestions (sure your partners love that).
Best trifecta in small biz? Shoeboxed, outright, and freshbooks. Please don’t lose your way – give me more of that good stuff so my accounting (yes, with the package I NEED and love, is even better)
12:38 am
I think a good accounting program pared with Freshbooks is a necessity. I look at it as front of the house (Freshbooks) and back of the house (Xero). Especially with Xero integration with Freshbooks now, the entire package is very easy and powerful…even for a small business.
1:30 pm
Good comments.
It may seem like we’re over-simplifying things in this post, but there are many businesses for whom we already are 90% (or more) of their accounting, and others where FreshBooks runs the day-to-day business in tandem with an accounting package and/or an accountant taking care of the rest.
If I was starting up in business for myself, or building a small company/service provider, I probably wouldn’t want to do all my own accounting – but I’d sure as heck want to run my own books.
For solo professionals like this, who get paid for their time and expertise, a lot of the “accounting” is creating, sending and following up on invoices and keeping track of core expenses. We’ve got that covered.
For people running teams: billing and time-tracking can be a real pain, especially when your team is on the road. The billing part has to be easy and you’re almost certainly running an accounting package in tandem to handle payroll and complex reporting. We work in that situation too.
For people who need to bill regular amounts on a recurring basis – again, FreshBooks makes it painless.
In two out of these three cases, there’s probably still an accounting package in the picture, but FreshBooks is running the business day-to-day and getting you paid. I think this is the scenario Tarch describes – makes sense to me.
6:26 pm
You have no idea how much I’ve been wrestling with this question for so long! Thanks for posting it. I *love* Freshbooks, but either it can’t do enough, or I wasn’t using it properly (remember, we’re consultants, not accountants), and my accountant claimed he didn’t have enough information to complete taxes, so I got to experience yet another year of scrambling, mannually organizing expenses, etc. before April 15th. My accountant convinced me that I need a full accounting solution, and I started the switch from Freshbooks to Quickbooks online last month. While me canceling Freshbooks was going to happen, I haven’t yet done that, and I’m now (once again) wondering if Freshbooks is indeed enough?? Here’s one key thing I’m focused on: with my number of clients, Quickbooks Online Plus only costs $10 more per month than Freshbooks, yet has full accounting and automated online banking, in addition to time keeping and invoicing. On the other hand, Freshbooks is MUCH easier to understand and has better support, etc. etc. Although this is an extremely timely subject for me, I can’t say I’m closer to an answer for myself though
9:07 am
Hey Brian, thanks for sharing your thoughts here. I know I’m biased, but I’d still be inclined to argue in favour of: FreshBooks for business people; accounting software for accountants. If complexity is what you want to avoid, I strongly believe FreshBooks should continue to run your business.
Having said that, I know this is a key business decision and only you can really determine the best fit for your needs. When you’ve weighed everything in the balance, if FreshBooks isn’t giving you everything you need, then perhaps we’re not the ideal fit. We know
we’re not for everyone. Before you leap, though, I hope you’ll give us a chance to dig into the details with you. We’d be happy to walk through your specific needs in detail over the phone, if that works for you. Let’s see if we can help you reach the best decision for your business. Drop us a note to support@freshbooks.com or call our main number: 1.866.303.6061 when you have the time.
BTW, have you checked out your “Upgrade” link in FreshBooks recently? You might be pleasantly surprised by what you could get for only another few bucks a month.
12:34 pm
Brian – if you haven’t tried the Outright/Freshbooks integration, that may be your answer. Outright is a free (no strings attached) online accounting system that will pull all of your Freshbooks invoices, plus other expenses like credit cards. It’s is very easy to use, and to set up the synchronization between the two accounts (once you set it up, it’s automatic from there). The two together work great.
6:37 pm
Hi Michael:
Thanks for asking this question and offering your perspective on it.
As someone who has helped businesses with QuickBooks for over 10 years, I can tell you first hand the significant number of disasters that I see when it comes to business accounting.
I love to say “just because you can do your own accounting (in QuickBooks, Peachtree, or any other full blown accounting package) doesn’t mean you should. Why complicate things if you don’t have to?
There are a couple of undercurrents here as well.
1) For some reason, many business people seem to believe there is “magic bookkeeping dust” in the box with the accounting software that turns them into bookkeepers and accountants. Unfortunately, that is not the case, no matter what the ads might lead you to believe.
Many people quickly realize they are in over their heads when they start seeing terms like “chart of accounts”, “fiscal year”, and so forth when they walk through the “easy-step” interview in QuickBooks (which has over 40 questions by the way and isn’t really easy as many find out).
Once they start to run off the rails with improper setup of the software, bad information simply snowballs a lot faster. Then the accountant has to spend a great deal of time unwinding the mess at the end of the year. Not an efficient use of the accountants time for sure and not an optimal way to run the business.
2) In many cases, at least here in the US, the accountant only knows how to use QuickBooks, so therefore that is the only thing their clients can use. Sad but true.
There is no question that a business will need fully functional accounting software at some point in their life cycle. Some sooner than others, depending on how quickly they grow, the feature sets they need, etc.
However, many businesses could easily use the combination of FreshBooks reports + exported information from FreshBooks for their accountants and survive quite nicely, especially in their early stages.
In fact, they may even thrive under this setup, since they aren’t getting a migraine from trying to figure out journal entries and debits and credits at the same time they are figuring out how to get paid.
The tricky part of this question for a business owner is having the vision to know when it is time to graduate from a simpler way to a more complicated way of tracking business financial information and understanding the many implications of making such a move.
I look forward to seeing what others have to say about this issue as well.
Scott Gregory
QuickBooks Specialist
3:33 pm
I’d love to be able to use FreshBooks instead of quickbooks online. However, even for a small business, what we’re calling expenses are actually a combination of expenses and capital expenditures. You buy a computer for the business and put that into your taxes as an expense as opposed to a capital expenditure, and you’re going to be in a world of hurt if you ever get audited.
As soon as you have capital expenses you then have to have depreciation schedules to figure out what your profits really were. Then there are different classes of expenses and whether you can claim all of them or just some of them.
I’d love a Freshbooks plus that had just enough extra stuff so we could use it to spit out corporate tax returns in the US and company accounts in the UK, but even for the smallest business, as soon as you buy something that’s a capital expenditure, you need a way to capture that which unfortunately isn’t an option at the moment.
1:27 pm
I’ve been using Freshbooks for two years to invoice our clients. Every so often, I have a book keeper / accounting team to come in. We do the customary -they recommend a software package that requires me to buy expensive software that lives on a machine that requires a certain level of expertise.
I always tell them about Freshbooks and most of the time they’ve never heard of the program. I walk them through the basics and ask them if we can use this for the bookkeeping and they always say, this isn’t a real accounting system you need quick books.
I really wish they could just accept the fact that for most small businesses, Freshbooks is a great alternative to Quick Books that anyone can use.
7:14 pm
This post is fine as far as it goes. I just think it doesn’t go very far. I suspect that the point at which Freshbooks becomes insufficient arrives much sooner for any reasonably successful venture than this post lets on.
Just the fact that I do a lot of my routine purchasing with a credit card, for example, simply because there’s no other payment option available (my Basecamp subscription, my Rackspace hosting, my /Freshbooks/ subscription) — that alone renders Freshbooks insufficient because there’s no longer a direct mapping between expenses and cash flow. So I need to start tracking cash flow separately.
What if I make money from some source other than billable work (e.g., a Shopify commission)? No straightforward way to track that in Freshbooks, either. So now I need to create dummy invoices, OR set up a separate system for tracking passive income.
Etc. This is no dig against Freshbooks itself; it’s a great time-tracking and invoicing tool. And reflexively buying Quickbooks at the outset is obviously a little silly.
I just think it’s a little odd to recommend against business owners getting familiar with the basics of business accounting. Because they’re going to need that familiarity, and probably pretty soon.
Tax accounting is of course a totally different animal; by all means hire someone to do that.
11:42 pm
Great post, would be awesome if you could add a “Daily” feature to the profit and loss statement.
That way at the end of each day we can check how much money we made. It’s all a matter of focus.
7:46 pm
Very true indeed! Got some difficulty also in Accounting business. Then, I have read Accounting principles in a site. It is never easy to understand Accounting but helps a lot.
10:23 am
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