As with almost anything I discuss on this blog, the answer to the question posed in the title is: “it depends.”
When I’m talking to business owners about what type of recordkeeping system they should use, here’s what I say: A good recordkeeping system will help you quickly and easily tally up your business income and expenses.
For some micro businesses (such as small side businesses), paper and pencil may be adequate, at least at first. For many others, a simple Excel spreadsheet will work fine.
What about using Quicken?
In my opinion, Quicken can work fine for a small service-type of business. These types of businesses typically have simple recordkeeping needs. Money comes in from customers, and there are a handful of recurring expenses and expenses for things such as supplies. Asset purchases are likely expensed in full (via Section 179). There’s no inventory to track. Just money coming in, and basic expenses going out.
Quicken quickly becomes inappropriate for businesses with more sophisticated needs. For example, tracking inventory, or actually managing customers or vendors (rather than just recording money coming in or money going out).
For example, I once — very briefly — had a client who was an S-corporation that had a large amount of revenue and lots of cost of goods sold deductions, as well as many other moving parts. The owner used Quicken to “keep the books.” I put that in quotes because the printout from Quicken was one of the most disastrous excuses for recordkeeping I’ve ever seen.
This particular business also had major purchases for things that were being depreciated, as well as payroll and multiple credit cards. Quicken simply cannot keep track of all this.
At the point where a business’s recordkeeping needs get more sophisticated, it needs to spend money on software beyond Quicken. Typically Quickbooks, though there are other good options out there too.
(Post-script: the business owner and I parted ways after I told him we’d have to extend his tax return and get the books cleaned up before filing the return. In this blog post, I wrote about a guy who called me an “incompetent a$$hole” and decided to just go back to H&R Block to get his corporate return prepared — well, that was this guy. He had used Block for the corporate tax return in the past, and since I was so “incompetent” and “in over my head,” he decided to go back to them because they never asked questions like I asked.)