6 reasons you need good bookkeeping records it the topic for today’s blog post. I’m betting most of you are thinking that the reason you need good bookkeeping records is so you don’t piss off the IRS.
That’s part of it, but really there’s so much more to it than that!
Maybe up until now, you’ve made finished items or designed patterns and:
- gave them as gifts to family and friends
- have given the items to charity
- or, sold then to friends or relatives just for the cost of materials
But then, someone suggested that you sell your finished items or patterns. Maybe open an Etsy shop or sell at craft fairs or flea markets. You think, “why not!”
You fire up your friend “Google” and search for “starting a handmade business” or “make money from crochet” (knitting, candle making, soap making, etc.). And you find a bunch of stuff like The Ultimate List: 20+ Ways to Make Money with Crochet.
You get super excited and think YES, I’m going to do this and start a handmade business!
You start to read everything to do with selling, selling, SELLING!
Guess what? You’ve just fallen into that it’s so easy to start a handmade business trap. Because there is so much more to running a business than just selling.
As a hobbyist you never had to worry about keeping records of what it cost to make that beautiful shawl you made for Suzy last Christmas. You made that shawl and gave it to Suzy because you loved her – the cost of the yarn and the hours you spent making it had no impact on your decision to make it. You did it because of LOVE!
And you can’t put a price on love …… can you?
The first change is a mindset change. You need to STOP thinking like a hobbyist (giving it away) and START thinking like a business owner (putting a price tag on it). In other words, you have to think of this as a job instead of a leisure activity.
If you’re going to start a handmade business and sell your finished items or design – you have to learn to put a price on the things you love to do and make.
This is why you need to keep good bookkeeping records.
You see, business and bookkeeping go hand in hand – just like peanut butter and jelly. You just can’t have one without the other 🙂
Another change, is that you now have to do some serious recordkeeping or bookkeeping. You need to track every penny you spend and every penny your make.
People start businesses to make money!
6 reasons why you need good bookkeeping records
- so you know how much money you are taking out of your own pocket to start your business
- to figure out (roughly) what it will cost YOU to run your business for the first year
- how to properly price your finished items or patters to make a profit. – (my FREE Project Cost & Pricing Worksheet will help you with that)
- so you can see exactly how much money you’re making and spending AND if you’re making a profit. Making money was your goal right along, wasn’t it?
- to figure out how much money you should be setting aside for taxes
- to report all this information to the “Tax Man” at the end of the year when you file your Income Tax Return – otherwise you could be in for an UNPLEASANT surprise – in the form of owing taxes!
The only way to accomplish this is through good bookkeeping records.
The best time to start a bookkeeping system is right from the very beginning.
As you start your business, you’ll want to keep track of the money you spend on:
- courses or membership you sign up for
- materials you buy (this becomes your Inventory)
- your domain name (if you’re going to have a website)
- hosting for that website
- any software that you buy or pay a monthly fee for
- business registration
- the fees for those initial Etsy listings
- ANYTHING that you pay for that is related to starting and running your business
Those initial expenses are considered Start-Up Costs and can be deducted on your Income Tax Return at the end of the year. They are paid for by money you take out of your pocket and that money is considered an Owner Contribution.
Next, you’ll want to create a budget that includes all of your projected costs for the first year. FYI, some businesses don’t see money rolling in for the first year or two. This means that you have to take more money out of your pocket and you need to plan for that.
You also have to have a plan (or a pattern) for how you wan to do your books, that includes:
- what you want to track
- and, what you want to track it in.
Need help figuring where to start? Follow my 6 step process:
- Step 1 – sign up for my FREE Workshop – AVOID These 10 Handmade business myths
- Step 2 – read this article When to start a bookkeeping system for your handmade business
- Step 3 – this article you’re reading right now – 6 Reasons why you need good bookkeeping records
- Step 4 – Take this Quiz “Your handmade business bookkeeping – Is it Simple or Complex?
- Step 5 – Sign up for this mini-course “What should you be tracking in your handmade business bookkeeping”
- Step 6 – Sign up for this Master Class “Create a bookkeeping system for your handmade or creative business”