Let's talk about your handmade business finances

Let’s talk about your handmade business finances!

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Let’s talk about your handmade business finances and finance systems because I’m betting that those are terms you hear a lot and they sound pretty vague, right??? Like WTF do these terms even mean and what have I gotta do to make it all happen?????

If you’re like most handmade business owners, I’m betting you think that a handmade business finance system is just about getting a business bank account and then keeping personal and business expenses separate – because that’s what you’ve been told.

But there’s SO much more to it than just having a business bank account and keeping business and personal expenses separate.

If you’re confused about handmade business finances and finance systems

I’m going to break it all down for you and talk about five essential pieces of a handmade business finance system so you can make sense of ALL the pieces that you need to have in place.

By the time you’ve finished reading this post, you’ll understand the basics of a handmade business finance system:

And, then we’ll talk about putting it all together, so things make sense and flow smoothly for you.

Are you ready? Let’s do this!

Business Finances – Why you need a bookkeeping/tracking system

Sure, you need a business bank account and need to keep business and personal expenses separate. But that’s just the first step.

What you need is a tracking system, also known as a bookkeeping or recordkeeping system and just having a bank account doesn’t really cut it.

handmade business goals

“If your goal is to have a 5 or 6-figure handmade business, you need to have a business finance and bookkeeping system that will handle it.”

Start planning now!

Some people talk about a bookkeeping system. Basically, a bookkeeping system is just a way for you to keep track of your income and expenses in your handmade business.

It’s not enough to just write down how much you sold each month – you need to know how much you spent too! It’s the money you have left over that’s really important!

There are pretty much three different types of bookkeeping or recordkeeping systems that you can choose from:

  • Paper tracking systems – using either paper ledger sheets or a notebook where you handwrite your monthly income and expenses. Paper tracking systems are the most low-tech and least expensive options. They are something that you can get started with immediately. They’re fine when you are just starting out, but they aren’t manageable as your business grows.
  • Spreadsheet tracking systems – instead of handwriting everything, you’re taking that same information about income and expenses and putting it into a digital format. A benefit of spreadsheets is that you can create formulas that automatically do ALL THAT math for you. Which can be pretty awesome at the end of the month. But formulas break and spreadsheets can become unmanageable as your business grows because each month and each year you have to create a new spreadsheet.
  • Real bookkeeping software – this is the most advanced tracking system and will save you a LOT of time and energy later. Remember, we’re thinking about that long-term goal. The most popular bookkeeping software include QuickBooks Premier Desktop for Windows (which is my go-to and what I use), QuickBooks Online, and Xero (which all require that you pay for them on a monthly or yearly basis), or Wave and some others that are free. Real bookkeeping software can provide you with the most automation, does all the math, automatically creates reports that you need for tax time, and doesn’t require you to start from scratch each month or year. You just change the date and you’re on your merry way.

The goal with bookkeeping or record keeping is to be consistent. Make it a priority to spend a few minutes each day, some time each week, and then some more time each month to make sure your finances are in order.

The habits you put in place today will help you in the future.

ADDITIONAL RESOURCES: Software or spreadsheets for handmade business bookkeeping, 8 Free Bookkeeping Programs for Creative Businesses, Software or spreadsheets for handmade business bookkeeping, Does my handmade business need a bank account?, How to find a bank for your handmade business, Your new handmade business checking account, FREE Handmade, Creative, or Craft Business Bookkeeping Journal

This is how you get paid for your products or services (if you’re a tech editor).

  • The first part of getting paid is the way that your customers give you money. This can be an invoice that you create and send them that they pay for online, an online checkout page, PayPal, Stripe, ThriveCart, etc. There are a lot of different ways you can get paid. You want to think about what’s the best method(s) for your handmade business.
  • Next, you need to make sure you get to keep the money you’ve received. So, you need to have a refund policy. This is where you set processes and boundaries for when people ask you for their money back (or a refund). When will you refund someone their money? When won’t you refund someone their money? How does someone contact you about a refund? What’s the process? These things are all part of a refund policy and you want this to be clear so you’re not panicking when someone asks for a refund.
  • Finally, there’s a discount policy. Which is basically how many discounts do you want to give out each month or each year. A discount policy helps you to set boundaries for yourself and your business around how much you’re willing to give away for free.

I get it. As women we’ve been taught to be givers. Meaning that when someone asks us for something we automatically want to give that person what they’re asking for. Often times we end up feeling selfish when we say no and burnt out when we give too much.

As business owners we’re in this to make money from our handmade business. So, starting the year with a discount policy and a discount budget gives you a framework to follow so you don’t fall into the trap of over giving.

ADDITIONAL RESOURCES: Are discounts hurting your craft business?

Handmade Business Finance System – Keeping track of ALL those receipts and paperwork

Probably the most important part of a handmade business finance system is document management, or what you do with all those pieces of PAPER that are related to your business finances.

Everyone knows that they should be keeping the receipts for what they spend money on but did you know that you should be keeping your business documents for 7 years?


You should keep copies of your business income tax returns (your Schedule C, here in the U.S. and your Canadian T-2125 forms) and ALL the receipts for at least seven years from the tax year of the return.

Maybe you heard you only need to keep things for 3 years. But if you are audited, the IRS can go back for 7 years.

There are two ways that you can manage and store ALL that paperwork:

  • Hard copy or paper storage systems – where you print and keep a paper copy of EVERYHING. You can create monthly paper file folders and organize it all by month, then box it all up by year.
  • Digital or electronic storage systems – where you scan or print all the documents to a .pdf file. File the scans or .pdf’s in a folder system on your computer or in something like DropBox, Google Drive, Box, iCloud, etc. and then toss the paper.

ADDITIONAL RESOURCES: How to organize your bookkeeping paperwork

Business Finances – Understanding and managing cash flow

Cash flow is the amount of money that comes in and goes out of your business and is all about having money in the bank.

If you need a new computer, is there money in the bank to pay for it? If you have to take money from the family budget to buy a new computer, you’ve got a cash flow problem.

There are two pieces to cash flow management:

  • Money coming in – so the first piece of cash flow management is that we need to have money coming into our business and our bank account on a regular basis. This links back to how we’re going to get paid. Starting to see how all of these pieces depend on one another?
  • Money going out – this is the second part of cash flow management and is all about how much money you’re spending and WHEN you’re spending it. You could be spending money before you transfer money from your PayPal account into your business account or you’re taking money out of your personal funds to cover something that you’ve bought.
  • Understanding when and why you’re spending money – do you find yourself getting caught up in emotional or impulse spending? Do you feel triggered into buying something when you’re sad? Do you get an email about a yarn sale and buy a lot of yarn because of fear of missing out?

One of the best tools to manage your cash flow is a budget.

ADDITIONAL RESOURCES: Why you need a budget for your handmade or creative biz, Your Creative Biz-An Intro to Budgets, My Creative Biz-Let’s Create a Budget, My Creative Biz-Creating an Expense Budget, Your Creative Biz-Creating a Revenue Budget

Handmade Business Finance Systems – Setting aside money for taxes

Ah yes….the TAX MAN! You didn’t think I’d forget about “him” did you?

This is the part of a business finance system that no one loves or even wants to think about – the saving for and paying your taxes as well as filing your annual business tax returns.

This is a key piece of your business finance system. Both in the money part (paying your taxes) and being PREPARED for the actual filing part.

One of the best methods for saving for and paying taxes is to set aside (SAVE) money every month. Which means that every month you look at your businesses NET PROFIT (Income) and calculate a percentage of it (30% is a good amount) and immediately transfer that amount into your savings account. This becomes money that you don’t touch – no matter what!

As a self-employed handmade business owner, you’ll have to pay taxes – that’s inevitable – UNLESS your business has a loss.

woman with head in her hands in front of a computer stressed about tax time

When it’s time to file your taxes, BE PREPARED!

MAKE time EVERY week to do your bookkeeping so you’re not scrambling to get EVERYTHING together!

You might not feel that your bookkeeping is all that important. But ignoring your bookkeeping all year long, until it’s time to file your taxes causes a LOT of STRESS and PANIC come tax season.

Make an appointment with yourself each week – one that you don’t break no matter what – to do your bookkeeping. Doing your bookkeeping on a weekly basis (in small chunks) keeps things manageable so you’re not scrambling to get it all together by April 15th, is a key part of your business finances.

Bookkeeping can be emotionally overwhelming for some of us. But doing your bookkeeping and saving for your taxes throughout the year is an act of self-care.

ADDITIONAL RESOURCES: When to start a bookkeeping system for your handmade business, AVOID these 10 Handmade Business Myths – FREE Workshop

Business Finances – Paying yourself

While paying yourself is the last thing I’m talking about, it really is an important piece of your business finances and systems.

Paying yourself is how your business takes care of YOU as the owner and how it can contribute to YOUR personal and family finances.

There are two sides to each of us. There’s the business side that works hard to grow your business and the personal side that’s not your business – maybe your a wife, a mother, or just a free spirit.

Many of us get really wrapped up in our business. We forget we started our business to MAKE MONEY – we forget to take money out to pay ourselves.

As owners of a sole proprietorship or a single-member LLC we don’t get a regular “paycheck” like we would if we worked for someone else – instead, we take an Owner or Member Draw.

Yes, there’s always so MUCH yarn that we want to buy or things that we “think” our business needs to be successful – but if you don’t pay yourself – what’s the point?

Paying yourself is how your business takes care of YOU and you need to plan or budget for that too.

ADDITIONAL RESOURCES: How to record an Owner’s Draw, When do I FINALLY get to pay myself?

Putting all the Business Finances and Systems together

You might be thinking “good grief, you just rattled off five things and I don’t even have a bookkeeping system yet!” Or maybe you just might feel like your head is about to explode.

While all of this may be overwhelming, I hope you can see that the more of these pieces you can get to work together, the easier taking care of your business finances will be.

Starting with small steps and getting all these individual pieces or systems to work together, you’ll find the easier it is for you to stay on top of things.

Focus your energy on creating systems that are intentional and that will work together so they maintain themselves – making your life easier.

Tell me, what did you think? Too overwhelming or did it make sense?

Let me know in the comments below.

About Nancy Smyth, The YarnyBookkeeper

Hi, I'm Nancy. Yarn addict, career bookkeeper, and handmade business owner. I get the same feeling of joy when working with yummy yarns as I do when working with a column of numbers that all add up correctly. Bookkeeping for your handmade or creative business doesn't need to be scary. I can help you learn to handle your bookkeeping and other behind the scenes STUFF with confidence!

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