Freshbooks is Awesome, but Not For Accounting

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I really love Freshbooks for timekeeping and billing. There is no better option for solos and very small firms. But in 2012, Freshbooks changed its tagline to “cloud accounting.” Here’s the announcement, from Freshbooks founder, Mike McDerment:

So here’s the news: from this day forward, FreshBooks is Cloud Accounting. We’re not changing our name, we’re just changing the way we describe our services.

In fact, Freshbooks hadn’t changed anything about the software when McDerment made that announcement. Changes have come trickling out, though. One of the first “accounting features” introduced after the name change was the ability to create a balance sheet — by entering the numbers yourself. At first, I thought it was a joke. It wasn’t. The feature is still present in Freshbooks, and it has not changed.

A balance sheet is not something you can sketch on a cocktail napkin. Real accounting software generates a balance sheet using real numbers generated from your accounts. It’s not something you just make up yourself and then hand over to your accountant for tax preparation.

Then, Freshbooks announced the ability to import expenses from your bank accounts. That’s right, just expenses. And the data you get for your checks, for example, is not particularly useful. You don’t even get a check number to help you identify the check in question.

Further, Freshbooks ignores your deposits. I guess it assumes that the only deposits will be payments on the invoices you send through Freshbooks. If you do happen to have deposits that are not tied to an invoice, you have to enter them manually.

Speaking of payments, because Freshbooks does not match them up with your bank accounts, you do not get all the information you need. If you accept credit cards or use PayPal for processing payments, for example, you will pay a fee on every transaction. But Freshbooks does not account for those fees, so your profit and loss report will overstate your income by the amount of those fees. In other words, if the invoice is for $100, and someone pays with a credit card, there will be a fee of, say, $3. Freshbooks will show a deposit of $97, which leaves a $3 expense unaccounted-for.

But perhaps the most glaring omission is any sort of bank account register, which means there is no way to reconcile your accounts. This is a pretty fundamental omission. If you cannot even reconcile your accounts, you are not doing accounting.

Look, Freshbooks is fantastic timekeeping and billing software. If you are a solo or a very-small firm, there is nothing better. (Although if you want good timekeeping and billing bundled with practice management software, use one of our recommendations.)

But in advertising itself as “cloud accounting,” Freshbooks is misleading, at best. Freshbooks is excellent billing software with a few inadequate accounting features grafted on. It is not accounting software. It is woefully unsuitable for accounting.

(I did reach out to Freshbooks with my concerns, but I never received the promised response.)

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  • Avrum

    Hey Sam,

    Avrum from FreshBooks here. First off, we apologize that you didn’t get the response you were looking for and we appreciate your candid feedback. We also wanted to take a moment to acknowledge the points you brought up here. Our vision of cloud accounting is focused on helping small business owners keep track of their income and expenses so they can focus on their business, while deferring the complicated stuff to their trusted advisor or accountant. For the majority of small business owners, this is what they’ve told us is important to them.

    We believe the reason why so many small business owners track this information in word or excel—or worse, not at all—is because of the complexity of conventional accounting software. Using software designed for accountants when you’re not an accountant can be pretty intimidating for a lot of folks, so we’ve created a simple experience that business owners will actually use.

    For the folks that do require more accounting features than FreshBooks currently offers, we’ve heard the feedback, similar to your own, and we’re definitely exploring ways we can add more value while keeping things simple. It sounds like for you, FreshBooks is making billing and time tracking easier, and for that we’re glad to hear.

    Give me a shout if you want to chat,
    Avrum

    • Your “simple experience” is also “not accounting in any way.”

    • What more is there to say? Sam already gave a number of concrete problems that your product team should just go and address already. My team was considering switching from Wave Accounting, but now that I know that Freshbooks simply ignores bank deposits and PayPal fees, that’s a deal-breaker for us.

    • Avrum, I know that this is two years old, but just stumbled upon this while trying to resolve our own Freshbooks issue. After spending considerable time trying to figure out why our end of year reconciliation wasn’t meshing between Freshbooks and our bank account, we discovered that while Freshbooks pulls in our corporate credit card charges automatically, it ignores credits for rebated charges (we were double billed for a number of charges from a vendor). That experience was anything but “simple”. How anything that purports to be an accounting system can pull in debits but not credits is beyond me.

      • Tim O

        mic drop….and FreshBooks

  • Thank you for writing this! I thought it was just me and that I was doing something wrong because I couldn’t figure out where to find my deposits. Glad I was only on the free trial and read this before I paid anything!

  • Alla

    I’m right there with you! I have been a loyal freshbooks client for 6 years because their billing and time tracking is wonderful. I held out thinking that they must branch out and make their service more comprehensive eventually. Moreover, because of the number of attorneys who use their service, I kept hoping that they would get a decent trust accounting system in place. I even reached out to them regarding this years ago. It never happened. Their credit capability just does not quite correlate, making any sort of financial reports useless for attorneys in my view. After years of double entry into quickbooks, since invoices and expenses simply do not make a comprehensive law firm accounting picture, I have finally put my foot down and decided to leave freshbooks for another service. Incidentally, the export/import of data from freshbooks and into my new cloud service is not working as advertised (though I don’t know whose fault this is), and so I am still stuck paying for freshbooks while I manually transfer my client data and invoice history into my new system, what a pain. My new service might not have the same nice invoices, but at least my trust accounting is in order without manually punching data into quickbooks. My conclusion – freshbooks, without any fresh new features, is simply not the solution for attorneys!

  • Dillon Martin

    I’m glad you said this…I did a trial of Freshbook a couple weeks ago and thought I was just crazy because I couldn’t find the tabs to access accounting features (i.e. profit loss, balance sheet, bank register, etc.). I do a few transactions by invoice but certainly not everything. I appears that Freshbooks doesn’t recognize transfers within banking accounts either as these were imported as expenses. I agree, the time tracking and billing look cool. I just don’t do enough of those types of transactions that the software would make sense for me.

  • Glad I found this thread. As a Freshbooks user for many years I find it interesting that small business owners also wear the hat of an accountant. For businesses that make less than a few hundred thousand per year, has your tax person ever asked you to put together an assets and liabilities chart?

    Also is the volume of transactions that high that you cannot create the PayPal fees as credits? Or just record the net proceeds rather than the actual total?

    The question is this: as a very small business owner is your time best spent doing accounting or raising new business, leaving accounting to accountants.

    That’s the philosophical question here. Many online accounting products simulate practices started in the 13th century. I am not saying these “golden rules” are incorrect. I just wonder if they apply to absolutely ALL businesses. And maybe when you graduate to a larger business, then switching to double-entry makes sense, but for most of my experience and our small business customers Avrum is right: they don’t do accounting anyways, so why force a complex system on them prematurely?

    • So we agree that what FreshBooks does is not actually accounting?

  • Tim O

    Hey Sam, has anything been updated at Freshbooks since this post to fix the issues you talk about? We are looking at several options right now as we have been with Zoho awhile. We need time tracking in addition to a full accounting for income and expenses and the ability to reconcile and actually see our bank balance as one would thing an “accounting” platform would provide.

  • James Fuller

    Did anyone ever find a solution for reconciling bank account transactions with freshbooks? I switched to Quickbooks solely for its ability to track checks, but the time tracking is a major headache

  • James Fuller

    Did anyone ever find a solution to tracking bank account transactions with Quickbooks?

  • Ziggy73

    Just tried the one month trial.
    Freshbooks is not accounting software.
    And at $25 a month it is a rip off.