As a consultant, you stay busy helping your clients improve and take care of their businesses. So busy, maybe, that it can be easy to forget to improve and take care of your business. But if you’re not managing your consulting business properly, you won’t be able to help your clients manage their businesses—at least not for long.
One of the top areas of your consulting business that you need to manage is your accounting. Unless you are an accounting consultant, the thought of handling your accounting might be the stuff of nightmares. Using the best accounting software for your small consulting business can help tremendously. But, with so many options on the market, choosing the best accounting software can seem like an unsolvable puzzle.
Don’t panic! We’re here to help you find the best accounting software for your consulting business, based on your particular needs.
What Consultants Need in an Accounting Solution
Consultants have specific needs when considering the best accounting software for their businesses. Some of these needs include:
- Time tracking and customer billing: Time is the consultant’s most precious commodity. If you use a value pricing or package pricing model in your consultancy, you need to know where you are spending your time. If you bill by the hour, then time tracking becomes critical to your business’s revenue. Your accounting software needs to be able to quickly pull your billable time into an invoice, which you can then easily send to your client.
- Billable expenses: Whether expenses are a regular part of the consulting business or incidental expenditures, most consultants must pass billable expenses on to their clients. Your accounting software must allow you to not only track your billable expenses and easily pull them into an invoice but also to apply a markup charge if applicable. Your accounting software will get bonus points if you can easily attach receipt images to expenses, since many clients will require backup documentation prior to paying your invoice.
- Mileage tracking: All small businesses can benefit from keeping a mileage log if the owner uses a personal vehicle for business. Although technology has made it easy for consultants to work with clients all across the country and even around the world, many consultants still travel to their clients’ businesses and need to be able to track their mileage for billing. Your accounting software should have a built-in mileage tracker or be able to easily integrate with one.
Should Accounting Software for Consultants Include a Balance Sheet?
Unless you maintain an inventory of products you sell to your consulting clients, strictly speaking you don’t need a balance sheet. That’s because, in most cases, consultants don’t have fixed assets or inventory to track, and any business debt is minimal. Many consultants aren’t interested in building equity in their business, either, at least not in the early stages of business.
Beware though: Even if you don’t need to track assets or liabilities, without a balance sheet your accounting system is “open” rather than “closed.” In other words, you are missing a piece of the accounting equation, which can help you make sure your bookkeeping is accurate. Most specifically, open accounting systems usually lack a separate reconciliation feature, which is vital to making sure all your income and expenses are recorded properly.
If you choose an accounting software for your consulting business that does not contain a balance sheet component—and one such accounting systems is recommended on our list (more on that below)—then make sure you are reconciling your bank and credit card accounts regularly outside of the accounting system.
The Best Accounting Software for Consultants
There are numerous good accounting software options on the market for consultants. Out of all the tools available, though, three stand out in terms of ease of use, affordability, and functionality.
Our Top Pick: QuickBooks Online and Xero (tie)
- Both QuickBooks Online (QBO) and Xero are easy to use. Making your bookkeeping less of a chore means you will be more likely to keep up with it.
- Both QBO and Xero are supported by a large—and growing—number of accountants and bookkeepers. This means if you need help, you’ll be able to easily find it.
- Both programs have an easy-to-use mobile app. This feature is incredibly important if you are a consultant on the go, because you can categorize your expenses, invoice your clients, and take care of a number of other bookkeeping tasks while you are away from your office.
- Both programs have all the features consultants need. You’ll find easily integrated time-tracking solutions, billable expenses features with markup capability, and easily integrated mileage tracking with both QBO and Xero. You can even use the mobile apps for both programs to snap pictures of your receipts and attach them to expenses.
With both QBO and Xero ranking at the top of the list, how do you know which one is the best accounting software for your consulting business?
It’s largely a matter of visual preference.
Xero’s layout is more visually appealing to many consultants than QBO’s. You can customize your Xero dashboard to show only the things that are most important to you, and you can easily and intuitively find the things you choose not to put on your dashboard. Xero also steers clear of using accounting jargon, which makes it less intimidating to many non-accountants than QBO.
Runner Up: FreshBooks
Some consultants find QBO and Xero to be a little “too much” for what they need in their accounting software. If you are looking for an accounting software for your small consulting business that is still fully functional but less overwhelming, check out our runner-up pick, FreshBooks.
FreshBooks started out as an invoicing and time-tracking software for freelancers and other self-employed individuals. It has since evolved into a powerhouse accounting software for small businesses that don’t technically need a balance sheet component.
FreshBooks lets you track your expenses and mark them as billable, invoice and collect payments from your clients, and—with the MileIQ integration—easily track and import your mileage expenses. Since FreshBooks connects directly to your bank and credit card accounts, you won’t have to waste time with data entry. You can be reasonably certain of the accuracy of your data if you monitor your bank feeds closely, even without a separate reconciliation feature.
Although FreshBooks does not provide a balance sheet, they do provide a template if you need to create one. You will need to consult with an accountant if you need a balance sheet, but FreshBooks has a large and growing number of accountants and bookkeepers certified in their software.
If your consulting business is mostly time- and service-based, FreshBooks might be just what you are looking for. It’s less robust than QBO or Xero, but still able to provide almost all of the same functionality using any number of third-party apps that easily integrate with FreshBooks. In fact, QBO, Xero, and FreshBooks all depend to some degree on third-party apps to customize their software for any particular industry.
Honorable Mention: Zoho Books
If you don’t want to manage a suite of apps in addition to the accounting software for your consulting business, our honorable mention pick, Zoho Books, might be the best choice for you.
QBO, Xero, and FreshBooks are all robust solutions, but some of the features a consultant needs are available only as add-on applications. It’s easy to get caught up in a cycle of constantly shopping for the “perfect” application that suits all your business’s needs. This can be overwhelming and confusing.
Zoho Books solves the problem of app exhaustion by providing a full suite of applications right within the Zoho ecosystem. Regardless of the features you need in your accounting software, Zoho has solutions, called transaction modules, that will integrate directly with Zoho Books. Pair this with the rest of the Zoho ecosystem—including Mail, CRM, and Office Suite—and you can easily run your entire consulting business using only Zoho products.
With all this functionality, you might be wondering why Zoho Books is only an honorable mention on this list. There are a few reasons why Zoho Books doesn’t top the list:
- Reimbursed expenses: Rather than booking reimbursed expenses as income, Zoho Books just reduces the expense. While the result on your bottom line is the same, our preference—and the preference of most accountants—is to see the income for reimbursed expenses broken out separately on the profit and loss statement.
- Cost: While no single component of the Zoho ecosystem is prohibitively expensive, you can easily exceed the subscription cost of QBO, Xero, or FreshBooks by adding on transaction modules. Many of the transaction modules in Zoho Books are standard features in the other accounting software mentioned in this article.
- Accounting support: You might have a hard time finding an accountant or bookkeeper who understands and supports Zoho Books. This isn’t a huge issue if you understand accounting and bookkeeping yourself, but if you think you’ll want support, you might be better off choosing QBO or Xero for your consulting business.
How to Pick the Best Accounting Software for Your Consulting Business
The best accounting software for your consulting business is the software you are comfortable using. Even if you engage the services of an accountant or bookkeeper to help you do your monthly bookkeeping, you will still need to use your accounting software to track your expenses and bill your clients.
Before making a final decision about the accounting software for your consultancy, take advantage of the free trial period offered by QBO, Xero, FreshBooks, Zoho Books, or any other accounting software you are considering. Rather than using the free trial period to set up your books perfectly, test the features you will use most often and make sure the software you choose supports you best.
Choosing the right accounting software for your small consulting business will help you stay on top of your billing and bookkeeping, which in turn will ensure your profitability and your ability to continue helping your clients grow their businesses.