QuickBooks vs Xero vs FreshBooks: the right accounting software for your small business

Choosing accounting software is one of the few early decisions that's hard to undo. Your history lives in it, your accountant learns your setup, and moving years later is a chore. So it's worth ten minutes now to pick the one that fits how your business actually runs.

QuickBooks Online, Xero and FreshBooks are the three most small businesses consider. They overlap more than their marketing suggests, so this comparison focuses on the differences that change your bill or your daily work: plan limits, users, inventory, currencies, payroll and payment fees.

Prices side by side

List prices per month, before the introductory discounts all three advertise.

All three advertise steep introductory discounts, such as 50% off for three months at QuickBooks and 80% off for three months at Xero and on FreshBooks' Plus and Premium plans. Budget on the list price, since that's what you'll pay from the fourth month.

What a year costs, at list prices

For a one-person service business that needs unlimited invoices and bank reconciliation:

• QuickBooks Simple Start: $38 a month, $456 a year.
• FreshBooks Plus: $43 a month, $516 a year, covering up to 50 billable clients.
• Xero Growing: $59 a month, $708 a year. Xero Early, at $324 a year, works only if you send no more than 20 invoices and enter 5 bills a month.

For a three-person team that all need access:

• Xero Growing: still $708 a year, since users are unlimited.
• FreshBooks Plus with two team members: $43 plus $22 a month, $780 a year.
• QuickBooks Essentials: $85 a month for up to 3 users, $1,020 a year.

The pattern is clear. QuickBooks is cheapest for one person and gets expensive as you add users. Xero's price doesn't move with headcount.

QuickBooks Online

QuickBooks Online is the most widely used small business accounting software in the US, and that's its biggest advantage. Most bookkeepers and accountants know it well, which makes hiring help and handing over at tax time easier.

Simple Start, at $38 a month for one user plus two accountant users, covers invoicing, expenses, bank feeds, reconciliation and bill payment by free ACH. Essentials, at $85 for three users, adds better reporting and time tracking on invoices. Plus, at $140 for five users, adds budgets, project profitability, inventory tracking and up to 40 classes or locations. Advanced, at $340 for 25 users, adds a construction financials solution, batch invoicing, custom permissions and unlimited classes.

There's also a free plan for basic tracking, limited to two invoices a month, with no bill pay, inventory or projects. It's useful for trying the software, less so for running a business.

Best for: businesses that want the most widely supported software, product businesses that need inventory, and anyone whose accountant prefers it. Watch for: the price climbs quickly with users.

Xero

Xero's defining feature is unlimited users on every plan. Your bookkeeper, accountant, business partner and operations hire can all have their own login without changing your bill.

Early, at $27 a month, is limited to 20 invoices and quotes and 5 bills a month, which suits a very small business but not one with regular suppliers. Growing, at $59, removes those limits and adds auto-reconciliation, budgets, performance dashboards and a 60-day cash flow forecast. Established, at $97, adds multi-currency, project time and cost tracking, international payments and a 180-day forecast.

Payroll comes through Gusto, for $36 a month plus $6 per employee as an add-on.

Best for: teams, businesses with an outside bookkeeper and accountant, and companies that invoice or pay in several currencies. It's also popular with accountants outside the US, which helps if your bookkeeper is abroad. Watch for: the Early plan's limits, and multi-currency only on the top plan.

FreshBooks

FreshBooks started as invoicing software for freelancers and still feels like it, in a good way. Estimates, proposals, retainers, time tracking and client-friendly invoices are its strengths.

Lite, at $23 a month, handles invoices, estimates, expenses and tax reports for up to 5 billable clients. Plus, at $43, raises that to 50 clients and adds proposals, retainers, double-entry reports, bank reconciliation and accountant access, which is the point where it becomes full accounting software. Premium, at $70, removes the client limit and adds project profitability. Team members cost $11 a month each.

FreshBooks Payments charges 2.9% plus $0.30 for card payments and 1% for bank transfers. FreshBooks Payroll costs $40 a month plus $6 per user.

Best for: freelancers, consultants and agencies who bill clients for time and projects. Watch for: the client limits on Lite and Plus, and the cost of adding team members.

Features that decide it for some businesses

• Inventory: QuickBooks Plus and above explicitly include inventory tracking. If you sell physical products from stock, start there.
• Several currencies: Xero Established includes multi-currency. Businesses that invoice abroad or pay overseas suppliers should weigh it.
• Projects and time: FreshBooks Premium, QuickBooks Plus and Xero Established all track project profitability. FreshBooks makes time tracking the most natural part of the workflow.
• Classes and locations: QuickBooks Plus supports up to 40, and Advanced unlimited, for businesses that track results by location or department.

Payroll

None of the three includes payroll in the base price, and payroll can cost more than the accounting plan. Xero links to Gusto at $36 a month plus $6 per employee. FreshBooks Payroll is $40 a month plus $6 per user. QuickBooks sells its own payroll product separately. Many businesses use a standalone payroll provider and connect it to whichever accounting tool they choose, so don't let payroll alone decide.

Three businesses, three choices

A solo marketing consultant with a dozen clients. FreshBooks Plus, at $516 a year, or QuickBooks Simple Start at $456. FreshBooks if proposals and time tracking matter most, QuickBooks if the accountant prefers it.

A four-person agency with an outside bookkeeper. Xero Growing, at $708 a year for everyone, compared with QuickBooks Plus at $1,680 for five users.

An online store selling physical products. QuickBooks Plus, for its inventory tracking, connected to the store platform.

A consultancy billing clients in euros and pounds as well as dollars. Xero Established, at $97 a month, for its multi-currency support and unlimited users. Recording foreign-currency invoices and the gains or losses when they're paid is tedious by hand, and it's exactly what that plan automates.

Integrations to check before you commit

Accounting software is only as good as what flows into it. Before you choose, list the tools your business already runs on and confirm each one connects to your shortlist.

• Your bank and card. Bank feeds save the most time of any feature. Confirm your bank connects reliably, especially if you use a smaller bank or an online business bank.
• How you get paid. Card processors, online stores and invoicing tools should push sales and fees in automatically, not as a monthly manual entry.
• Payroll. Whether you use the accounting tool's own payroll or a separate provider, payroll should post to the books automatically.
• Receipts and expenses. A corporate card or expense app that pushes receipts straight into your books saves the monthly chase.

Mistakes people make when choosing

• Choosing on the introductory price. All three discount the first few months heavily. Compare list prices for the plan you'll actually need.
• Ignoring user limits. A business that adds a bookkeeper and a partner can outgrow QuickBooks Simple Start quickly. Xero avoids the problem entirely.
• Starting on a plan that's too small. Xero Early's 5-bills limit and FreshBooks Lite's 5-client limit are easy to hit within months.
• Not asking the accountant. If your accountant works in one product every day, choosing another adds friction to every handover.

Switching later

If you outgrow your choice, switching is possible, just not painless. The cleanest time to move is at the start of a financial year, so the new system starts fresh and the old one holds the complete history. Export your chart of accounts, customer and supplier lists, and opening balances, and keep read-only access to the old system, or a full export, for as long as the IRS expects you to keep records. FreshBooks offers a data migration service on its Select plan, and accountants and bookkeepers often handle conversions between QuickBooks and Xero.

Before you choose

Ask your accountant which they prefer, take the free trials, and import a month of real bank transactions into the one you're leaning toward. An hour of real use tells you more than any comparison. Then commit, because the switching cost only grows with every month of history you add. If you're still setting up your books, our guide to small business bookkeeping covers the routine that makes any of these work.