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The Best Accounting Software for Early-stage Startups

Choosing which accounting software to use for your startup can be a daunting task. The first step to undertake before selecting a particular tool is to conduct a thorough needs assessment to understand both your financial and management needs. Some considerations to think about include what data your business needs to keep, what reports you need to generate (for IRS and tax purposes), if you have any industry-specific data that would require specialized modules (manufacturing, retail, and healthcare often require different datasets), any specific IT or hardware needs, and, of course, cost. 

The other thing to think about is what type of accounting platform you’ll need. There are a few general categories of products:

  1. Basic income and expense tracking systems, such as FreshBooks or Expensify. These tools generally do not help businesses create a balance sheet, which could ultimately make tax preparation more difficult.
  2. Simpler applications that have a lot of the necessary core functionality but omit a few features that are unnecessary for smaller businesses (Billy). This is typically where most seed-stage startups jump in, especially for founders with limited accounting experience. Most of these products aim to ease the creation of balanced financial statements.
  3. One-stop-shops, like inDinero and Bench, have software plus an in-house team that manages a company’s finances for them. These services are more expensive than software-only options, but give startups a simple way to visualize their numbers, as well as the peace of mind of having real-life people manage their finances (without the burden of bringing on a full-time accountant).
  4. Full-featured accounting platforms, such as QuickBooks and Xero that offer a comprehensive, more complex array of services to tackle all of your accounting needs. If you aim to get the most out of these tools, it’s important to have at least a basic understanding of accounting principles. It’s important to note that , most founders who use these tend to have very little interaction with the tool itself; instead, their bookkeepers or accountants use the tool and manage the entire accounting operation.

For early-stage startups, the Stacklist community recommends the following tools. As you’ll see, there’s rarely one perfect solution, so the choice boils down to determining what’s best for your startup and using it wisely.

BillyNew to the market is Billy, an app that provides simple billing and expense tracking for small businesses. Their hassle-free accounting services create professional-looking invoices without breaking the bank. Billy is the perfect meeting point between Quickbooks and Freshbooks, and is ideal for the small business or freelance customer. 

FreshBooks: FreshBooks focuses its energy on the billing process, including invoicing, capturing expenses and tracking time, and boasts over 50 integrations to streamline processes. “Freshbooks is fantastic—so easy to get up and running, with a nice integration with Stripe,” says Everplans Co-founder Adam Seifer. Another big advantage is FreshBooks’ customer service. Pashmina Lalchandani, owner of Flow Simple, attests, “If you call right now, they’ll pick up the phone and solve your problem. I can count on one hand how many services I think have excellent customer service, and Freshbooks is top of the line.”

Expensify: Another very basic tool, Expensify simplifies the process for submitting expenses. “Aesthetically, Expensify is one of the worst-looking tools, but its killer feature is that it creates IRS-ready receipts for me for any expense under $75. It will actually create the receipt for me if I lose the first one,” explains Pashmina Lalchandani of Flow Simple. “It’s also great because I reimburse my employees for benefits. Expensify is great for that, and it’s super compliant. Plus, it integrates into every tool you would want to use.”

inDinero: Specializing in early-stage companies, inDinero is a software plus a specialized accounting team all in one. Founders love this one-stop-shop approach: “I love the analytics that come along with it, and the fact that someone else handles our books for us,” says Wade Foster, co-founder and CEO of Zapier. Tim Dingman, COO of Castle states, “None of Castle’s founders have any formal training in finance or accounting, so we leave it to the professionals at inDinero. The price might seem steep, but it’s actually competitive with the rate you might get from your neighborhood accountant.” 

Xero: An accounting tool with more robust options than those previously mentioned, Xero bills itself as a QuickBooks alternative. Billie Whitehouse, co-founder of Wearable Experiments explains, “It pretty much tracks everything. It’s simple, and it integrated into our bank, which was really important for me. I actually think it’s surprisingly useful. I’ve never had a problem that lasted more than 10 minutes with it. I know that some of the other software out there for payroll and accounting is incredibly confusing, and I’ve never had that problem with Xero.”

Once your company has grown beyond these services and a more comprehensive platform becomes necessary, the hands-down choice among Stacklisters is QuickBooks (the online version, unless you require multicurrency capabilities). Over 75% of Series A and B startups use QuickBooks, with the general sentiment being that “this tool is pretty much a standard and is used by many companies, but it is a moderately pricey option and is a little cumbersome,” explains Victoria Kimura of Inxent Inc. Users do love that, with QuickBooks Online, you can “you can log in from anywhere, have multiple users, and it’s very flexible,” notes Bridget Best, Director of Finance at Kickstarter.  However, Best explains, “If you’re planning to go public, QuickBooks won’t be sufficient for auditors in preparing for a public offering. The conversion from QuickBooks Online to an Intacct or NetSuite is painful, but everyone does it when they’re getting ready to go public. I see no reason to start out on one of the big products, though.”

With so many options to choose from, the most important thing to keep in mind is finding the best accounting tool for your particular startup. In selecting that tool, always be sure to consult your accountant and IT team to make sure that any future software will fill your needs and complement your existing software.  

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