How Free Bookkeeping Software Might Cost You in the End

If you do a Google search for bookkeeping software, you might be surprised by the number of options available. Along with the well-known providers, you will notice a number of lesser-known solutions, and a lot of these companies offer their bookkeeping software for free. That can be a huge temptation when you are bootstrapping your business!

There is a reason most bookkeepers and accountants shy away from free bookkeeping software, though. While there are some very good free solutions on the market, business owners need to be aware of the potential pitfalls. Free bookkeeping software might end up costing you in the end.

An Incomplete Solution

Free bookkeeping software is not always a complete solution. Often, some of the components necessary to effectively run your business are missing. Even the free software that claims to provide everything you need occasionally requires the user to do some time-consuming work. This could open you up to costly mistakes, such as overpaying (or underpaying!) your taxes, or misrepresenting your financial position and then being rejected for the business financing you need to grow your company.

The Differences Between Free and Paid Solutions

Each bookkeeping software provider is different, and with the number of solutions available, it is nearly impossible to test them all. The following comparison chart shows the differences I have encountered between paid bookkeeping software and free bookkeeping software.

free-bookkeeping-software-costFree Bookkeeping Software: A Professional Bookkeeper’s Tale

You might look at the table above and think the shortcomings of free bookkeeping software are not that bad. Maybe you think a free solution is “good enough” to get you by until you can “afford” paid software. There are some good free bookkeeping solutions available, but I say that with a caveat.

After having worked with some of the free bookkeeping software available, I can provide the following anecdotal evidence against using it:

The Case of the Out-of-Balance Balance Sheet

A new client used one of the more reputable free bookkeeping solutions available. While this solution claimed to have a balance sheet component, the “balance sheet” was a fillable form within the software. This client had attempted to build his own balance sheet using this tool (actually, he had tasked his administrative assistant with putting it together), and he wasn’t understanding why his balance sheet wasn’t in balance. I was asked to assist.

Because the client and his administrative assistant did not understand accounting, they had neglected to include the partners’ equity on the balance sheet. They did not include any assets other than the bank account because they thought purchases of assets were one-time expenses. Their liabilities were also understated.

Fortunately, this client did not simply “force” the balance sheet to balance, and instead, he asked for help. He needed the balance sheet in order to submit a proposal for a lucrative contract—providing an inaccurate or incomplete one could have cost him the contract. By the time the client paid me to create the balance sheet and factored in the amount of time his administrative assistant spent on it, he could have paid for at least 18 months’ worth of service from a paid bookkeeping solution. And he would have been able to produce a balance sheet in seconds.

The Case of the Mysteriously Disappearing Transactions

I was a founding member and treasurer of a professional women’s organization. Because we did not want to spend any of our limited startup budget on anything other than program growth, I found another reputable free bookkeeping software and set up the organization’s books in it.

This particular software does produce a balance sheet, and it has a pretty good bank feed system, too. However, the balance in the bank account according to the bank feed was off by around $200 compared to the balance sheet. I was able to locate the source of the problem: a transaction that appeared in the detail on the balance sheet, but not in the bank feed.

I contacted support (via email), and I received a reply a few hours later. The support person had to manually reset the software on their end to resolve the problem. This same issue repeated for two more months—resulting in hours of additional work—before I finally told the board I would donate a paid bookkeeping subscription to the organization.

So, $200 may not seem like a lot of money, but it was to our organization … and it would be to many small business owners as well. Had I not known to compare the information in the bank account to the balance sheet, I would have overstated our available cash, which most likely would have resulted in us overdrawing the account (an occurrence the national association frowned upon and could have slowed down our charter process).

You Get What You Pay For

All bookkeeping software is only as good as the information entered into it, but you don’t want to have to constantly second-guess the accuracy of your data. Because these companies invest heavily in their solution, paid software typically does not have the sort of shortcomings noted in the second story. In both of the cases above, only someone with bookkeeping or accounting knowledge would have known there were problems and how to fix them.

If you are running a new business and not yet at a point where you can afford to invest in monthly bookkeeping or accounting help, it’s critical for you to be able to rely on your bookkeeping software’s accuracy. In this regard, a paid bookkeeping solution is an investment in your business.

If your business is more advanced, you could use free bookkeeping software and make up the shortcomings with spreadsheets and other tools. But why would you want to? With most bookkeeping software costing less than $50/month, going with a free solution is tripping over dollars to save pennies.

If you are a freelancer or own a very simple service business, free bookkeeping software might be a good solution for you. I urge you to compare the functionality of the free software with the paid solutions now available for freelancers and self-employed service providers before making a decision, though.

In any event, whether you use free bookkeeping software or a paid bookkeeping software, it’s a good idea to hire a bookkeeper or an accountant to set it up for you and train you on its proper use. Free or paid, bookkeeping software is a tool, and enlisting professional help will ensure your success.

The post How Free Bookkeeping Software Might Cost You in the End appeared first on Fundera Ledger.

from Fundera Ledger https://www.fundera.com/blog/free-bookkeeping-software-cost
How Free Bookkeeping Software Might Cost You in the End

first seen on http://barbarapjohnson.blogspot.com

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About mojafarma

Know how to a get business line of credit and promote online. Then come and read our blog. It’s a great resource for business related topics.
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