Like many freelancers, your business might have seemed to happen spontaneously—in fact, your freelance work may not seem like work at all to you. But no matter how much you love what you do, make no mistake about it: If you are being paid for your services, you have a business. That means you must keep accounting records to make sure you’re correctly reporting your income and tracking your deductible business expenses. In other words, you need freelancer accounting software.
The best business accounting software for freelancers is easy to use, yet powerful enough to provide you with the functionality you need to run your business efficiently. Especially if your business is a side gig, you don’t want to spend a lot of money on freelance bookkeeping software, either. So, how do you choose the best freelancer accounting software for you? We’ll show you how, plus our picks for the three best out there.
What Freelancers Need From Their Accounting Software
Freelancers need to go through many of the same processes as other small businesses, like setting up an LLC and purchasing liability insurance for themselves and their businesses. But freelancers also have needs that many other small businesses don’t—and they need accounting software with capabilities to match.
As a freelancer, look out for an accounting software with at least the following capabilities:
1. Billable expenses: Although freelancers do have some overhead costs, many of a freelancer’s expenses are billable to their clients. This means your freelance bookkeeping software must be able to not only record expenses but also easily pull them into invoices you can send to your clients. It must also allow you to markup those expenses to ensure your profitability.
2. Mileage tracking: All small businesses can benefit from keeping a mileage log if the owner uses a personal vehicle for business. But—like with billable expenses—freelancers might need to track their mileage for billing. Your freelance accounting software should have a built-in mileage tracker, or be able to easily integrate with one.
3. Customer billing: Many small, service-based businesses have moved away from billing on a per-job basis in favor of flat pricing or a subscription model. Freelancers are the exception to this rule. You want to make sure your accounting software supports customer billing, as well as an easy way for your clients to pay you.
4. Commingled bank accounts: It’s best practice to separate your business and personal finances. But if your freelance business is very small, a side hustle, or if you’re just getting started with it, you might not want to open separate banking and credit card accounts right away. Regardless of its size, though, you’re still responsible for your freelance business’s taxes—so you need a way to clearly delineate between your business and personal expenses. The right accounting software for your freelance business will help you do this with ease.
What Freelancers Don’t Need From Their Accounting Software
Most small businesses require balance sheets and profit and loss statements to accurately track their finances and project their growth. The first document shows the business’s assets, liabilities, and equity. The second shows the business’s income and expenses, and can be used for tax preparation purposes.
But this is where freelancers stray from the norm. Strictly speaking, freelancers don’t need to maintain a balance sheet. That’s because, in most cases, freelancers don’t have fixed assets to track, and any business debt is minimal. Freelancers typically aren’t trying to build equity in their businesses, either, choosing instead to use all of their freelance income to support their lifestyle or provide “extra” income for their household.
So, most freelancers are just fine operating their business with a profit and loss statement only, and they don’t necessarily need an accounting software that tracks balance sheets.
There is a big caveat to the line of thinking that says freelancers don’t need to maintain a balance sheet, however. We’ll take a look at that in a minute.
Freelancer Accounting Software: The Good, the Better, and the Best
There are numerous good accounting software options on the market for freelancers. Out of all the tools available, though, three stand above the rest in terms of functionality, ease of use, and affordability.
The Good: FreshBooks
FreshBooks was made for freelancers. Literally. The company started out as an invoicing- and time-tracking software for self-employed individuals, and has since evolved into a powerhouse accounting software for freelancers, sole proprietors, and even some larger small businesses, too.
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, and you can be reasonably certain of the accuracy of your data if you monitor your bank feeds closely.
Busy freelancers don’t have time to get stuck on technical issues or wade through pages of online FAQs to figure out how to use their accounting software. FreshBooks realizes this, and they have an excellent customer service team that responds quickly to users’ questions. Even though support is provided via email, you won’t have to wait days for an answer—you can often get an answer to your question within an hour.
Like the next option on this list, FreshBooks does not provide a balance sheet, though they do provide a template if you need to create one. Actually, FreshBooks recommends seeking the help of an accountant if you find yourself needing a balance sheet. But, as we mentioned, chances are you won’t need this document unless your business grows beyond the freelancing stage.
As for price, FreshBooks starts at $15 per month, though you’ll likely soon need to move up to the $25/month plan. Any additional apps you need, like MileIQ, will increase your monthly investment. However, for a limited time, FreshBooks is offering 60% off for six months on Lite, Plus, and Premium plans when new users skip the 30-day free trial period and opt to buy now.
The Better: QuickBooks Self-Employed
With more than 2 million users worldwide, QuickBooks Online is the household name in small business accounting. Intuit’s QuickBooks Self-Employed product has steadily gained momentum since it was first introduced in 2015, offering a simple accounting solution for freelancers and other very small businesses.
QuickBooks Self-Employed has many useful features, including:
- An easy-to-use and phone app.
- The ability to separate business and personal expenses right on the app.
- Automatic mileage tracking.
- Simple invoicing, including the ability to turn on online payments.
- A receipt capture feature, so you can ditch the paper receipts.
- Estimated quarterly tax calculations.
- The ability to collaborate with your accountant.
QuickBooks Self Employed has two pricing options. Their core option—which includes all the features listed above—costs $10/month. For an additional $7/month, you can add the TurboTax bundle. This bundle allows you to pay your estimated quarterly taxes online, export your Schedule C information to TurboTax, and file one state and one federal tax return through TurboTax each year.
As wonderful as QuickBooks Self Employed is, it has one major shortcoming: You can’t upgrade to QuickBooks Online if your business outgrows the freelance business model. If you need to move to a more robust QuickBooks solution, you’ll have to start a completely new QuickBooks subscription and start your accounting file from scratch.
The Best: QuickBooks Online Simple Start
Earlier, we mentioned that freelancers don’t really need a balance sheet. And this is true from a business management and tax standpoint. However, most accountants and bookkeepers will disagree on this, and for a very good reason.
Although you may not have much in the way of fixed assets or liabilities, and you may not be building equity in your business, a balance sheet is still critical to staying on top of your finances—without one, there’s no way to ensure your books are accurate. But you’re covered with QuickBooks Online Simple Start, which does provide a balance sheet.
This software pick provides freelancers with the ease of use of QuickBooks Self Employed, and the power of QuickBooks Online, for the very affordable investment of $20/month.
True, QuickBooks Online Simple Start is lacking the tax bundle option available in QuickBooks Self Employed, and it doesn’t have an onboard mileage tracking feature. However, it more than makes up for these “shortcomings” in overall functionality and its ability to grow with your business—with QuickBooks Online Simple Start, freelancers get a complete bookkeeping and accounting solution with a bank reconciliation feature, which is something lacking in both FreshBooks and QuickBooks Self Employed.
Why is the reconciliation feature so important?
Reconciling your accounts monthly helps you make certain your books are accurate, potentially saving you hundreds of dollars per year in taxes and penalties. This is why a balance sheet is important for all businesses, regardless of size and structure. Without it, there is no true way to reconcile, leaving your bookkeeping open to potentially costly errors.
Plus, QuickBooks Online Simple Start can evolve with your business if you outgrow the freelancer business model, since you can easily upgrade from QuickBooks Online Simple Start to QuickBooks Online Essentials or Plus. And, as is the case with QuickBooks Self Employed, you can easily collaborate with your accountant or a bookkeeper.
How to Choose Your Best Freelancer Accounting Software
Above all, you want the accounting software for your freelance business to fit your needs. FreshBooks, QuickBooks Self-Employed, and QuickBooks Online Simple Start are all excellent choices for freelancers. But it’s important to do your research; you might find that another accounting software for sole proprietors and self-employed individuals actually works better for you.
Whatever you choose, keeping your freelancer accounting software up to date on a regular basis—along with careful consultation with your accountant—will help ensure that your freelance business is profitable for many years to come.
Billie Anne Grigg
Billie Anne Grigg is a contributing writer for Fundera.
Billie Anne has been a bookkeeper since before the turn of the century. She is a QuickBooks Online ProAdvisor, LivePlan Expert Advisor, FreshBooks Certified Beancounter, and a Mastery Level Certified Profit First Professional. She is also a guide for the Profit First Professionals organization.
Billie Anne started Pocket Protector Bookkeeping in 2012 to provide an excellent virtual bookkeeping and managerial accounting solution for small businesses that cannot yet justify employing a full-time, in-house bookkeeping staff.