Learn how to record an Owner’s Draw in your bookkeeping records for your handmade or creative business.
An Owner’s Draw is:
- money you take out of your business to pay or repay yourself
- NOT a business expense, so it should not show up on your Profit & Loss Report
- part of your businesses Equity, so it shows up on your Balance Sheet
So, your business is showing a profit and you’ve decided that it’s time for your to actually pay yourself. Even if it’s not a lot of money.
How to record an Owner’s Draw
If you use bookkeeping software:
Most bookkeeping software programs automatically creates an Equity account for you when you create your Chart of Accounts.
The problem with this is that it doesn’t specifically create an account to track just the money you take out of your business. But it’s easy enough to add a new Equity account that you’ll use just to keep track of the money you’re taking to pay yourself.
When you use bookkeeping software, it’s as easy as writing a check to yourself when you’re ready to take a draw. Even if, in reality you’re going online into your business bank account and transferring the money to your personal account.
Here’s the process:
- Open your checking account (or your Write Checks window)
- Enter the date
- Use the number field to hold the transaction number from your online transfer – OR – the actual check number
- In the Pay to the order section – enter your name
- Enter the dollar amount
- In the Account/Expenses tab, select Owner’s Draw
- Record/Save the transaction
Once you record the check, your checking account will decrease and the Owner Draw account will increase by the amount of the check and is shown on your Balance Sheet.
Now, at any point you can create a Balance Sheet Report in your software (I’m using QuickBooks Premier Desktop) and you can see how much money you’ve taken out of your pocket to fund your business.
If you’re using spreadsheets for your bookkeeping:
Many of the handmade business bookkeeping spreadsheets that I’ve found, including the one from Crochetpreneur, don’t provide you with a way to track money that you take out of your business to pay yourself. That doesn’t help you at all when it’s time to look at your big picture finances.
Spreadsheets are unique to the person that created them. How beneficial they are to you will depend on whether or not that person has any real bookkeeping experience.
Spreadsheets you find on the internet may or may not include a Balance Sheet or any other means of keeping track of the money you take out of your business or put into it.
And that doesn’t help you make good business decisions, like is my business making enough money to support itself.
If your spreadsheet system doesn’t include a Balance Sheet or a way to keep track of the money that you take out of your business, then I would highly recommend that you create a new “sheet” and keep track of it.
I’ve added an Owner Contributions/Draws worksheet to the Handmade Business Resource Library. You can access the Library when you subscribe to my newsletter.
Did you find this post helpful? Still have a question? Drop it in the comments below.
