How to Keep Track of Expenses for Your Handmade Business

The 5 Money Buckets Every Maker Needs.

If you’ve ever stared at a pile of receipts, half-empty yarn labels, or an Etsy statement and thought, “Where does all this even go?” — you’re not alone.

Expense tracking can feel like trying to untangle a skein of yarn after your cat’s had a field day with it. But once you understand the 5 expense buckets every handmade business has, everything starts to make sense.

These buckets tell you where your money’s going, what you can deduct, and whether you’re actually making a profit — not just guessing at it.

Why You Need to Track Your Expenses (Even If You Hate Numbers)

Every dollar your handmade business spends has a job.

When you track where it goes, you can:

✅ See if you’re really making money (not just bring in sales)
✅ Get every tax deduction you deserve
✅ Set better prices for your products
✅ Ditch the panic when tax time rolls around

Skipping this step is like crocheting without counting stitches — things look fine until the edges start curling and nothing lines up.

The 5 Expense Buckets Every Handmade Business Has

1️⃣ Cost of Goods Sold/Cost of Sales

These are the costs directly tied to creating the things you actually sell. If it becomes part of the finished product, or is used to get it ready to sell, or if it’s something that happens after you sell it, it belongs here.

Here is a list of categories that you might want to have in your bookkeeping system and what belongs in each category.

• Direct materials and supplies. This category is all about the cost of the materials and supplies that actually go into creating that beautiful handmade item you just sold. Think yarn, fabric, ribbon, polyfill, and even those adorable child-safe eyes.
• Indirect materials and supplies. These are the sneaky ones. Things (costs) that also go into making your finished items, but they aren’t so easy to keep track of – like thread, glue, or a little sprig of silk flowers that adds an extra touch of magic.  You know you used them but you can’t always tell exactly how much (say feet, inches, drops, etc.) you actually used.
• Tools, machinery & patterns. Let’s not leave out the trusty tools, machinery and patterns that help you to bring your creations to live. These are the items that aren’t literally part of the product itself, but you couldn’t make your handmade item without them.  We’re talking about essential things like hand sewing needles, crochet hooks, knitting needles, scissors, pliers, and maybe even your trusty glue gun.
• Fees. These are those sneaky little rascals that come with selling your finished items. These include Etsy and PayPal merchant account fees, and craft fair booth fees.
• Shipping, Packaging & Postage. Don’t forget about the fees involved in getting your finished items delivered to your customer.  This covers everything from boxes and padded mailers to labels, envelopes, and the actual cost of the postage.

💡Think of Cost of Goods Sold/Cost of Sales as “what it costs to make, sell, and deliver the thing.”

2️⃣ Inventory Purchases

Not everything you buy is used right away. Materials or supplies you buy now but haven’t yet been used in a finished product? That’s inventory.

Examples:

• Bulk yarn, fabric, or materials waiting on your shelf
• Extra packing supplies you haven’t used yet

🧶 Inventory is money sitting on your shelf — track it so you know how much cash is tied up in supplies.

3️⃣ Asset Purchases (a.k.a. Big-Ticket Items)

These are long-term tools or equipment that help you run your business and last more than a year. You don’t expense them all at once — you record them as business assets — and give a list of purchases to your tax pro at tax time.

Examples:

• Sewing machine, serger, Cricut, or kiln
• Laptop, printer, or camera
• Display tables, tents, or lighting equipment
• Furniture or shelving for your workspace

🛠️ If it costs more than a $500 and you’ll use it for several years, it’s probably an asset.

4️⃣ Overhead/Administrative Expenses

This is everything else it takes to keep your business running — even on days when you don’t make a single sale.

Overhead consists of a LOT of things:

• Licenses & legal fees. The necessary steps to keep your business on the right side of the law like business licenses, permits, registration
• Display expenses. You’ll need a beautifully presented booth for craft fairs. Think stands, tags, racks, tables, and maybe even a snazzy tent.
• Photography expenses. To capture the essence of your creations. You might need photo editing software, props, a camera, or even a fancy lightbox
• Advertising. Maybe you need business cards, hang tags, or even printed brochures.
• Website expenses. Don’t forget the cost of your online presence. Things like web hosting costs, website design costs, logo, banner, and anything else that keeping your online sop running smoothly.
• Education. As a savvy craftpreneur, investing in education is vital. These expenses cover business seminars, webinars, e-courses, and inspiring books that fuel your growth.
• Professional fees. Sometimes you’ll need professional help, like consulting services, tax preparation, a trademark lawyer, and these services come with fees.
• Travel. Travel expenses are also part of the game – mileage or gas for driving to the post office, to the craft store, to exhibit at a craft fair, attend a business meeting, lodging for staying over night for any of these reasons.
• Professional membership. If you’re a member of professional organizations like The American Crochet Association (ACA), The Yarnpreneur Society (YPS), The  Craft Industry Alliance (CIA), or the Crochetpreneur Business Academy, don’t forget those subscription fees!.

💡Overhead can keep the lights on — literally and figuratively.

5️⃣ Other Expenses (a.k.a. the “Doesn’t Fit Anywhere Else Bucket)

Sometimes an expense just doesn’t fit neatly into any of the other categories — and that’s okay.

Examples:

• Charitable donations from your biz account
• Loss on the sale of an asset
• Theft or damage at a craft fair
• “Ask My Tax Pro” for expenses you just don’t know how to categorize

📎Keep this list short — too many “miscellaneous” expenses can muddy your reports.

How to Keep It All Organized (Without Losing Your Maker Mind)

Let’s face it — bookkeeping isn’t your favorite task. But with a few simple habits, it can stop being the monster hiding under the bed:

✨ Create one receipts folder for each month – physical or digital.
✨ Label each expense with one of the 5 buckets above.
✨ Use color-coding or tabs to keep them visually organized.
✨ Update your spreadsheet or bookkeeping app weekly while things are still fresh in your mind.
✨ Review every month, quarter, 6 months, and yearly to catch errors

Quick Maker Challenge: Sort & Celebrate!

Set a 15-minute timer.

Grab your last handful of receipts or digital transactions and label each one:

COGS, Inventory, Asset, Overhead, or Other.

Even if you only sort a month’s worth, that’s progress! You’ll instantly see where your money’s going — and that’s the first step toward profit clarity.

Next Up: Tracking Costs While You Create

In my next post, we’ll talk about how to track costs while you’re making things – so you’ll always know exactly what it costs to create each finished product (and how to price it for profit).

Until then, pour a cup of coffee, sort a few receipts, and give yourself a gold star — you’re building the financial foundation your handmade business deserves. ☕🧶

This post was originally published on 10/28/2017 and was updated on 11/13/2025.