When you own a small business, keeping your books up-to-date is an important part of your job. Your financial results help you understand your success as a business owner and are vital for tax preparation when tax season comes around.

Online accounting software is great for business owners on-the-go or tech savvy owners who want to access their financial information and invoicing on different devices from a client site, your office, or the comfort of your own home. (For more, take the tutorial Starting A Small Business at Investopedia University.)

Wave Accounting

Wave Accounting is a favorite online accounting software for online entrepreneurs and service-based businesses. The basic tools are free for single-member businesses without an employee payroll. Accounting features include automatic transaction downloads and categorization from bank and credit card accounts, custom reports, full business accounting capabilities and accountant access.

Business with employees can use Wave Accounting's full-featured payroll service for a fee. The service offers full integration into the accounting suite. Additionally, for a competitive fee, you can also use Wave for payment collections.

Quickbooks Online

Quickbooks is the best known brand in small business accounting, and the online version offers the same features and functionality through a cloud-based platform. The platform can handle all business bookkeeping, reporting, invoicing, payroll, reporting, tax preparation, payments and accountant collaboration. Quickbooks Online is the most robust Internet-based accounting option: it can handle virtually any accounting requirement for most small to mid-sized businesses.

For that power, though, business owners must pay a fee. Basic packages start at $9.99 per month and the full featured upgrade costs $29.99 per month. Extra fees apply for payment processing and payroll management. Quickbooks is owned by Intuit (INTU), the company behind Mint.com and TurboTax.

GoDaddy Online Bookeeping

Formerly known as Outright Accounting, GoDaddy Bookkeeping brings your bookkeeping and website management under one roof. GoDaddy Bookkeeping features standard accounting tools such as bookkeeping, invoicing, tax preparation and profit and loss reporting. The service focuses on keeping the tools simple through a minimalist approach.

Freshbooks

Freelancers and other service-type businesses that heavily depend on invoicing for cash flow are best suited for Freshbooks. The service tracks financial accounts and helps with tax preparation, but its most distinguishing feature is its invoicing capabilities. Freelancers and business owners can use Freshbooks to track billable hours or manually input invoices for your clients.

Freshbooks offers a 30-day free trial, after which the service costs between $9.95 to $39.95 per month depending on the number of clients being billed and features being used.

Xero

Based on available features, Xero is Quickbooks Online's biggest competitor. Xero has robust features such as bookkeeping, invoicing, bank reconciliation, expense management, purchase orders, payroll, and the ability to add additional user accounts. The service's most powerful differentiator is its library of over 350 apps that can be connected to a Xero account. These third party add-ons including payroll services, inventory management, payment processing, customer relation management, ecommerce, retail store POS integration, customer credit management, and management of business loans.

Xero costs between $9 and $30 per month depending on the features being used. Third party add-ons may incur an additional fee.

The Bottom Line

Running a business can be a complicated undertaking. Small and medium sized business owners have to keep track of many moving parts including their finances, taxes, government obligations and their customers. Online accounting tools have taken the ease and simplicity of computerized accounting to the next level. Instead of downloading software and updating it, you can now keep your books online to access from anywhere.

With the rise of data breaches and organized hacking, some businesses may be reluctant to make the jump to online bookkeeping. But the services provided will more than likely become industry standard within the decade.

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