Business finances are not always the most enjoyable business activity if you are a creative person, but making sure you know your financial numbers is vital to run a successful, and profitable, Etsy shop. So here is a series of posts to help any Etsy seller get on top of their Etsy financials so they can work out their Etsy earnings and the Etsy seller fees they will be charged.
- How much does Etsy cost?
- What do Etsy’s revenue figures mean?
- How to know if you are really making a profit on Etsy
- How to make Bookkeeping easy for your Etsy shop
I bet when you were first starting your creative Etsy shop, you were full of hope and inspiration. You thought you could avoid doing all of the dull stuff, such as paperwork. Well, unless you can afford to pay someone else to do it, or have a willing volunteer, then sorting out your Etsy financials is a part of business life you will need to get used to.
While keeping financial records might be boring, it is one of the best things you can do for your business. Not only will an efficient bookkeeping system make your life easier come tax time, but understanding your financial position will enable you to make better business decisions.
So please, no matter where you are on your business journey, start keeping financial records.
The easiest things you can do to keep your Etsy financials manageable is to do the following:
1. Keep your accounts separate
To make your records as straightforward as possible ALWAYS make sure you have a bank account and credit card that is solely for your business.
Your personal and business transactions should be kept separate.
The bank account doesn’t need to be an ‘official’ business account. It just needs to be something that you use only for your business. This is so important because it is much easier to track your business finances if your business money is separate from your personal money.
To keep your business finances separate from your personal, the first step is to set up a bank account and credit card for your business activities.
You can choose to create a proper business account in your business name or use a business PayPal account and a PayPal debit card for their expenses.
If you don’t want to set up a bank account in the name of your business, you can dedicate a personal account you already have for business activities. You could even use a credit card you already own as your designated business activity card. This scenario makes sense in the early days when you are getting started.
Whichever method you choose, you need a way to keep business transactions completely separate from your personal money.
This is the first step to good small business record keeping.
2. Save your Receipts
It goes without saying that you should make sure you keep all your receipts for any valid business expense from the start.
File all your electronic receipts in one place, so they are easy to find.
You can file them all to a single email folder, or download them to a specific folder on your computer.
The same goes for your paper receipts. Keep them in one place and ordered by month. This makes finding them more accessible if you need to. I put everything in a large envelope with the month and year written on it and then put that envelope in a box file for the year. It doesn’t need to be complicated.
You will also need to have access to your bank statements. As mentioned earlier, this can be a bank account in your personal name, or a business bank account. Be sure you will have access to your bank statements for at least 3 years (check with your country’s own rules) after you file the related tax return.
Many tax agencies say that the burden of proof is on the taxpayer to prove their income and expenses. So, keeping thorough records is very important!
3. Use a bookkeeping tool to record your Etsy financials
The last step to making your Etsy financials easy is to use an accounting/bookkeeping program.
There are many online accounting program options available, most have a monthly cost, the price of which varies. Most can also be set up to automatically import your bank transactions which is a huge time saver.
But, if you don’t want to have a monthly cost, then I have created a bookkeeping spreadsheet specifically for Etsy sellers. It is the Etsy Seller Profit Plan.
It’s simple to use. You just download two monthly files from Etsy and copy the data into the spreadsheet. Then watch all your data magically appear into the reports/dashboards. In no time, your Etsy financials are all recorded and you can see how much profit you have really made. It also shows you what sales you have made in each state to help you work out if you have any tax liabilities there.
Your Etsy shop record keeping does not have to be painful.
By following these three simple steps, you will have accurate financial records in just a few minutes a month.
Reviewing your Etsy financials will help you make wise financial decisions for your business.
Having your record-keeping done at the end of the year will allow you to quickly complete your tax return, or hand the information over to your tax accountant.
By being proactive about your business record, keeping you will save yourself many hours of stress and aggravation.