Business and bookkeeping go hand in hand – it’s a fact of life just like death and taxes. The moment you decide you are going to start a handmade business and not just be a hobbyist anymore – EVERYTHING changes!
Maybe up until now, you’ve made items and:
- given them as gifts to family and friends
- have donated them to charity
- or, even sold them for the cost of materials plus a couple of bucks for yourself
No biggie. It wasn’t important to keep track of your expenses – because you looked at it as a hobby – something that you enjoyed doing to pass the time.
But then either someone suggests that you sell your items, open an Etsy shop, or sell at craft fairs – and you go for it. Guess what? You’ve just fallen into that “but, it’s so easy to start a handmade business” trap.
So, when I say everything changes, I really am serious.
First, it’s a mindset change. You need to stop thinking like a hobbyist and start thinking like a business owner. In other words you have to think of it as a job instead of a leisure activity.
One of the changes is that you now need to do some serious bookkeeping and keep track of every penny you spend and every penny you make. People start businesses to make money. The only way to know if you’re making or loosing money is to keep track of how much money you spend and how much money you make by keeping GOOD bookkeeping records.
For many small business owners the terms “bookkeeping and accounting” might just as well be the WORST four-letter words that they have ever uttered out loud!
Bookkeeping, accounting, spreadsheets, numbers, paperwork and even formulas really aren’t anything to be intimidated by – they are just words and things – but they are done for some very important reasons.
3 reasons why you need to do bookkeeping for your handmade business:
- Report information to the “Tax Man” at the end of the year when you file your income tax return – otherwise you could be in for a very unpleasant surprise (such as owing a LOT of money).
- So you can see exactly how much money your are making and spending and if you are making a profit from your handmade business. (Making money was our goal all along, right?)
- How to properly price your items.
Bookkeeping is the recording of financial transactions (money made and money spent) and is part of the process of owning and running any sort of business, not just a handmade business. I’d like to say bookkeeping is simple (and it sort of is) but it’s not.
You sort of need a plan (or a pattern) for how you want to do your books and what you want to track. You’ll want to record (in writing or in software) all of your expenses and your sales revenue (or income). And I don’t mean just throwing everything into a shoebox or a file folder and then look it over at the end of the year.
Do yourself a favor and think about a bookkeeping system now that you can use in your business. Whether you want to use a software program like QuickBooks desktop (my personal favorite), a simple Excel or Google Sheets spreadsheet, or even go old school and buy one of those special bookkeeping notebooks and dig out your trusty calculator.
The first step is to just wrap your head around the fact that ……. bottom line – if you have a business, you MUST keep books.
Next, we’ll talk about what you should be recording in your bookkeeping system.