tracking expenses - hobby vs. business

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Keeping track of expenses for your handmade business is one of the most important things you can do for yourself and your newfound business.

When you are a hobbiest, you really don’t have to keep track of a lot of things – except for maybe how much your spending impacts the family budget.

When you decide to make the move to becoming a professional handmade business, well everything changes – as it should.

As a business, what you spend impacts the pricing of your finished items – Oh My God (OMG)!  That’s right – much of the money you spend on your business needs to be included when it comes to product pricing.  There I said it.  Many new handmade business owners often make the mistake of only including what it actually cost them to make their finished items, and maybe a few bucks for themselves.  When you do this – you are definitely under-pricing yourself and your business won’t stay afloat, unless you have unlimited money to keep investing (putting into) your business -and I doubt that many of us do.

Tracking your expenses answers questions like Am I really making money at the end of the day (month or year)?  When you are selling finished items, it might feel like you are raking in the bucks, BUT if you are only subtracting the cost of your supplies from that income, you may feel like your business is successful – but then end up wondering WHY you bank account isn’t  showing that because it’s either in the hole or darned close to it and you need to take MORE money from your personal accounts to cover costs.

If you are REALLY tracking all of your business expenses, you are able to get a good handle on whether or not your business is really profitable – meaning it can not only pay all of it’s expenses but put some cash back into your pocket.  You’ll also be able to get a good idea on where you are spending too much money (on unnecessary things that you really don’t use), where you can cut back, and whether your pricing formula needs adjusting.

Another important thing to remember is that you need to keep ALL of your receipts to provide PROOF of your expenses.  You can star all of your emails, print copies to .pdf and save them to a folder on your computer (and you’d better make sure that you back up your computer, especially that folder), or actually print them to paper and file them away in your swanky file cabinet.  One important thing to remember is that you can’t expect the IRS to be cool with hundreds or thousands of dollars in expenses with no backup documentation!   That just ain’t going to happen.

Now you may be wondering what is the BEST way to keep track of expenses in your handmade business.  Unfortunately, the answer is “it depends” (don’t you hate that?).  Really the answer depends entirely upon you and what works best for you.

A real accounting program, like QuickBooks desktop (which is my personal favorite) will sort your expenses into nifty buckets for you – but that costs money that you might not have at the moment.  On the other hand you can create (or buy) some sort of spreadsheet system – where you can create a tab for each spending category (or even sub-category) and then create a summary sheet with formulas that can add up all those expenses from all those different tabs in one place so you can see totals.  (For more information about “Why you need to do bookkeeping for your handmade business“.

The easier your system is – the better.

That’s enough brain ache for this time.  Take a break, take some Advil or Tylenol, and give yourself a well deserved pat on the back for at least reading this entire page.

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