Free accounting software for small businesses: what you really get from Wave, Zoho Books and QuickBooks

You don't need to pay for accounting software on day one. Several products offer free plans good enough to run a small business's books properly, and a spreadsheet still works for the very simplest. The catch is that every free plan has a limit, chosen to push you onto a paid plan at some point. Knowing which limit applies to you is the whole decision.

This guide covers the three free plans most small businesses consider, plus the spreadsheet option, and tells you which one fits which business.

The free plans side by side

Zoho Books Free

Zoho Books's free plan is the most complete of the three, with one condition. It's available indefinitely as long as your revenue for the financial year stays at or below $50,000. Cross that, and you move to a paid plan.

Inside that limit you get a lot. One user plus one accountant, up to 1,000 invoices a year, quotes, expenses and journals, receipt autoscans, mileage tracking, online payments, a customer portal, bank reconciliation, W-9 management and 1099 contractor tracking, and the profit and loss, balance sheet and more than 50 other reports. That covers what a solo service business or a small shop needs from its books.

When you outgrow it, the paid plans are inexpensive: Standard at $15 a month billed annually ($20 monthly) for 3 users, Professional at $40 ($50 monthly) for 5 users, and Premium at $60 ($70 monthly) for 10.

Best for: freelancers, consultants and small local businesses with revenue under $50,000. Watch for: the revenue cap, and email-only support.

Wave Starter

Wave's free Starter plan has unlimited estimates, invoices, bills and bookkeeping records, a mobile app for invoicing, and a dashboard for cash flow and customers. There's no revenue cap.

The trade-off is automation. On the free plan, bank transactions aren't imported automatically. Automatic bank import, merging and categorization come with the Pro plan, at $19 a month or $190 a year. So does unlimited receipt capture, automated payment reminders and access for more than one user. On Starter, you enter or upload transactions yourself, and receipts are a paid add-on at $11 a month.

Wave also earns money from payments. Card payments through Wave cost 2.9% plus $0.60 on Starter, or 3.4% plus $0.60 for American Express. Pro lowers that to 2.9% with no fixed fee for your first 10 card transactions each month. Payroll starts at $25 a month, and Wave's bookkeeping service starts at $149 to $199 a month.

Best for: businesses that send lots of invoices and are comfortable entering transactions, or that will move to Pro for automation. Watch for: manual bank entry on the free plan, and payment fees.

QuickBooks Free

QuickBooks Online's free plan offers basic tracking for one user, limited to two invoices a month, with no bill pay, inventory or project features. It's useful for one thing: learning QuickBooks before you commit, especially if your accountant prefers it.

For running a business, you'll soon need Simple Start, at $38 a month at list price, which adds unlimited invoicing, bill payment by free ACH and two accountant users.

Best for: trying QuickBooks. Watch for: the two-invoices-a-month limit.

The spreadsheet option

A spreadsheet is free, flexible and, for a very simple business, enough. A freelancer with one bank account, a handful of clients and few expenses can keep a clean ledger in a spreadsheet: date, description, category, amount and a link to the receipt.

It stops working as soon as volume or complexity grows, usually somewhere around a few dozen transactions a month, or the first time you need to know who owes you money without scrolling. Spreadsheets don't reconcile against your bank, don't catch duplicates and don't produce a balance sheet without effort. They also make your accountant's year-end work slower. Use one if you're testing an idea, and move to software once the business is real.

Where free software makes its money

Free plans aren't charity. Each company expects to earn from you in one of three ways, and it helps to know which before you commit.

• Payment processing. If your customers pay invoices by card through the software, it takes a fee. On Wave Starter, a $1,000 invoice paid by card costs $29.60 ($29.00 plus $0.60). On a $500 invoice, it's $15.10. Encouraging clients to pay by bank transfer instead can save real money over a year.
• Upgrades. Every free plan is designed so that a growing business hits a limit: Zoho Books' revenue cap, Wave's manual bank entry, QuickBooks' two invoices a month.
• Add-ons. Payroll, receipt capture and bookkeeping services are sold separately, often at a higher price than the core software.

None of this is a reason to avoid free plans. It's a reason to read the payment fees and the upgrade price before you start, so neither surprises you a year from now, when moving would be harder.

What your accountant will need from you

A free plan is fine for tax time as long as it produces what your accountant asks for. Check that yours can give them:

• A profit and loss statement and a balance sheet for the year.
• Reconciled bank and card accounts, so the totals match your statements.
• A list of contractors and what you paid them, for any Form 1099-NEC. Zoho Books' free plan includes W-9 management and 1099 contractor tracking.
• An export or accountant login, so they don't have to retype anything. Zoho Books' free plan includes one accountant user.

If your free plan can't produce these cleanly, your accountant will spend time, billed to you, rebuilding them.

Moving from free to paid without losing your history

The easiest upgrade is within the same product. Moving from Zoho Books Free to Standard, from Wave Starter to Pro, or from QuickBooks Free to Simple Start keeps all your data in place. Moving between products is harder, and is best done at the start of a financial year.

That's the strongest argument for choosing your free plan with your likely paid plan in mind. If you expect to need several users soon, start in a product whose paid plans suit a team. If your accountant works in one product, start in that product's free tier.

Which free plan fits your business

A freelance designer earning $35,000 a year. Zoho Books Free. It covers invoicing, expenses, bank reconciliation and the reports your accountant needs, and you're well under its revenue cap.

A tutoring business sending 60 invoices a month. Wave Starter, for unlimited invoices, with a plan to move to Pro when entering bank transactions by hand gets old. Zoho Books Free's 1,000 invoices a year would also cover 60 a month.

A side project you're not sure about yet. A spreadsheet, kept in the same format each month, until the project earns enough to justify software.

A business whose accountant uses QuickBooks. QuickBooks Free to learn it, then Simple Start once you're running properly.

An online store selling physical products. Free plans rarely suit you for long. Inventory, sales from several channels and sales tax in more than one state push most online sellers onto a paid plan within months, so it's worth starting in a product whose paid tiers track inventory, such as QuickBooks Plus.

When to start paying

Free software is the right start, not the right end state for most businesses. These are the signs it's time to pay:

• You're entering bank transactions by hand and it takes more than half an hour a month.
• You've passed a free plan's cap, such as Zoho Books' $50,000 revenue limit.
• Someone else needs access, such as a partner, a bookkeeper or a second employee.
• You need features the free plan lacks, such as payroll, inventory, several currencies or project tracking.
• Your accountant asks you to switch to the product they work in.

When that day comes, the cheapest paid steps are small. Zoho Books Standard is $15 a month billed annually, Wave Pro is $19, Xero Early is $27 with tight limits, and QuickBooks Simple Start is $38. Our comparison of QuickBooks, Xero and FreshBooks covers the paid options in detail.

What free software won't do for you

Whatever you use, the software only records what you give it. The IRS expects records that show where income came from and that support every expense, with the payee, amount, date, proof of payment and a description. Free or paid, you still need a separate business bank account, receipts for your expenses and a monthly hour to keep things current. Our guide to small business bookkeeping covers that routine step by step.