take control of your bookkeeping & build a · 2017. 1. 11. · take control of your bookkeeping...

Take Control of Your Bookkeeping & Build a Profitable Etsy Biz

Congratulations on being an AMAZING creative entrepreneur and taking control of the financial side of your business. Becoming knowledgeable and confident about your business’ finances is truly empowering.

This ebook will explain the benefits of developing effective bookkeeping practices for your Etsy shop. Too many creative biz owners neglect the numbers-side of their business because they find it overwhelming, confusing, or just plain unexciting. What you must know is that staying on top of your accounting is not only the responsible thing to do, but it can help you work smarter (not harder) and allow you to build a sustainable, financially successful business.

Janet LeBlanc paperandspark.com !2

http://paperandspark.com

The goal of this ebook is convince you why recording and analyzing your creative biz’s financial transactions are essential processes that you should perform as an entrepreneur. Being aware of your business’ finances can impact the following areas of your business:

• Profitability & financial success • Cash balance in your bank account • Pricing for your finished products • Business decision-making & planning • Taxes

Don’t you want to know whether your business is truly making a profit? Do you want to make sure you price your handcrafted goodies just right so that you make a profit with every sale? Would you like to know when you have the cash flow to invest in a new product line? Do you want to be able to maximize your tax deductions?

You can have all these answers and more if you get a secure handle on your business finances. The key is to make sure you’re effectively and efficiently recording and tracking your expenses, then you can use this info like a true Etsy rockstar.


A SUCCESSFUL BOOKKEEPING SYSTEM HELPS YOU WORK SMARTER, NOT HARDER.


This ebook will cover the following topics to get you started on your journey to financial confidence:

✓ Getting Started – Setting up Systems That Make Sense

✓ How to Find a Business Bank Account

✓ What Can Bookkeeping Really Do for Me?

✓ What Being Financially Successful Actually Means

✓ Monthly Financial Analysis

✓ Pricing & Expenses – Get Your Expenses Straight

Let’s go!



Getting Started – Setting up Systems That Make Sense

Make practicing smart bookkeeping skills a priority in your business. This requires setting up an accounting and financial system that makes sense to you – one that you will use consistently.

The first step to an effective bookkeeping system is to set up a separate bank account just for your business transactions.

To be honest, there is nothing illegal or against the “rules” about using your personal checking account for your business (assuming you’re operating as a sole proprietor). However, having a separate bank account will make things a lot easier for record-keeping purposes and reduce your chance of making costly errors.

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The two major benefits of having a separate account for your Etsy shop or creative biz are as follows:

1. You can now accept & deposit checks made out to your business name, write checks as your business name, and get a debit and credit card in your business’ name.

Nothing is more annoying than when a customer or consignment shop makes a check out to your business name and you can’t cash it (this has actually happened to me)! Since most banks won’t let you cash a check made out to your business in your personal checking account, setting up a bank account for your business solves this problem.

It’s also very handy for bookkeeping purposes to have a debit card linked directly to your business checking account. Now when you purchase shipping supplies, raw materials, or whatever else for your business, you can use your business card to pay for it.

2. Your personal and business cash inflows & outflows are not considered “comingled” for tax and financial purposes.

If you operate your business out of your personal bank account, you will need to be very careful and organized once tax time comes around and it’s time to separate your business from your personal transactions. Having only one account means digging through a lot more transactions to figure out what belongs where, and that takes time and energy you’d probably rather use elsewhere!

Having a separate account dedicated to just your business prevents this problem. You can simply download all of the transactions in your business account and call it a day. This is also really good news because if the IRS ever audits your tax return, you have good documentation readily available.



These are the biggies, but there are lots of other benefits to separating your business funds…

• You will save time & energy by downloading bank transactions directly to your financial spreadsheet or whatever software you use.

• You will be much more aware of the total cash balance of your business. You’ll have a better handle on your business’ day-to-day cash flow. Simply check your bank balance to know if you can afford to make that next big supply run.

• You won’t be able to dip into personal savings to fund your business because the money simply won’t be there.

Do your research – how to find a bank that fits your needs

Opening a business bank account does require some research on your part, and it will probably cost some money upfront. Proper planning can eliminate many unnecessary bank fees.

Some small biz owners opt to simply open a separate personal checking account at their existing bank for their business transactions. The main reason you might do this is because opening a new personal checking account is usually free. The downside to this idea is that you usually can’t get checks or a debit card in your business’ name if it’s not a business checking account. You also might not be able to deposit checks made out


A BUSINESS BANK ACCOUNT KEEPS YOUR PERSONAL FUNDS OUT OF THE PICTURE AND

LEGITIMIZES YOUR BUSINESS.


to your business if your business’ name is not on the account.

Opening a business checking account is really the most legitimate thing you can do; however, the downside is that nearly all banks charge some sort of fee(s) when it comes to business checking accounts. You might be charged a fee to open the account, or you might have to keep a minimum balance in the account or be hit with a bank service charge. Some business checking accounts also charge a per transaction fee if you have more than a certain number of transactions each month.

Do your research before you choose a banking home for your business. Weekly monitoring of your account can usually help you avoid any extra bank service charges, with the added silver lining of making you more aware of your finances on an ongoing basis!

I recommend the helpful online resource Nerd Wallet to find a business bank that best fits your needs. This site will summarize all the fees (and


http://www.nerdwallet.com/business-checking-accounts/


their related restrictions, like transaction maximums and balance minimums) in one place, and give you recommendations based on your requirements and location.

To help you research your business banking options, the following page has a handy list of questions you can ask when comparing banks.

Opening a separate business bank account is your first step in setting up an effective bookkeeping system for your Etsy shop. Remember, the more you treat your Etsy shop like a real business, the sooner it will become a real (profitable, sustainable) business!


A STATE SALES TAX PERMIT OR A DBA LICENSE MAY BE REQUIRED TO OPEN A BUSINESS CHECKING ACCOUNT.

THESE LICENSES ARE USUALLY FREE OR COST A MINIMAL AMOUNT. A STATE SALES TAX PERMIT IS GENERALLY A

REQUIREMENT TO DO BUSINESS ANYWAY!


Business Bank Questionnaire

✓Is there a fee to open the account?

✓Is there a fee to purchase checks or a debit card?

✓Do they have a mobile app? Can I use the app to

deposit checks?

✓Is there a local branch nearby?

✓Is there a minimum deposit required to open the

account?

✓What is the minimum monthly balance to avoid a bank

service charge?

✓What is the maximum number of transactions I can have

each month before facing a per transaction fee?

✓What is the cash handling fee and the cash handling fee

threshold?



What can bookkeeping really do for me? Why does this even matter?

Now that you’ve got your shiny new bank account set up for your creative biz, let’s talk about why it’s important to stay on top of your bookkeeping process.

Diligent financial bookkeeping serves three main purposes:

1. You’ll know whether your business is actually making a profit or not (not just whether you have a positive balance in the bank account, or whether you made a bunch of sales last month and “feel” like you’re doing okay).

Are you really making a profit at the end of the day? Profit means revenue (your sales) less your business expenses. When you make sales, it might feel like you’re raking in the cash. If you’re only subtracting the cost of your supplies from that revenue (because it’s the only expense you’re tracking), you may feel like you’re really successful, and then wonder why your bank account doesn’t reflect that all that success.

If you are truly tracking all of your expenses, you can get a good grasp on whether your business is profitable, how much so, and adjust accordingly. You will also get a better idea of where you’re spending too much money and where you can cut back, and whether your pricing formula needs adjusting or not.

Having a profitable business, and not just one that makes lots of sales, is the key to building a sustainable business.



2. You can more accurately price your products or services to make a profit.

ALL of your expenses should be considered when you price every product you create, not just the raw materials or supplies that go into a specific finished good.

A lot of beginning creative biz owners make the mistake of only considering the cost of their supplies (plus maybe labor) when pricing their product and then end up grossly underpricing themselves.

Pricing too low means you aren’t covering all your expenses with your sales. That can mean you’re making sales, but you aren’t making a profit…or your profit might not be “big” enough to build a truly sustainable business. If you want your business to grow into something meaningful and long-term, then you need to price for profit from the beginning.



3. Maximize your tax deductions by recording as many business expenses as possible.

Most of your business expenses can be deducted on your business tax return come tax time. This is a good thing, because the more you can deduct, the less money you owe the IRS. If you don’t even have the expense transaction recorded in your bookkeeping system, then you’re probably not going to remember to deduct it.

The important thing to remember is that you need to keep proof of all your expenses in order to deduct them. Save those receipts!

Remember that there are lots of ways to organize your financial data. Find a system that works for you, that is easy to quickly update, and that is easy to analyze. You must be able to understand the numbers you’re entering and reviewing to get the full impact of your bookkeeping system.

What Being Financially Successful Really Means…

One of the benefits of having a consistent bookkeeping system means that you can easily and quickly determine if your Etsy shop is actually profitable at any given moment (this week, this month, this year, etc.).

Net profit is defined as your total revenue less your total expenses. You might also hear this term called “net income” or simply profit. Do not


TOTAL REVENUES – TOTAL EXPENSES = NET PROFIT


confuse it with “sales” or “revenue”. These are gross terms, which means they are only the cash inflow side of things, or the money you make without taking into account the money you spend.

You can be making tons of sales but have a very low net profit because your expenses are so high. You could even have tons of sales and be at a net loss because your expenses are larger than your sales.

A good bookkeeping system will be able to show you where you stand in terms of profitability, and help you make decisions accordingly. Knowing your net profit each month can help you make all sorts of decisions for your shop.

Remember, you go through all the work of inputting and recording your financial transactions in order to have this super helpful data on hand to help you plan your business and reach your goals. The bookkeeping process is the work; the data analysis is the payoff. Let the numbers speak to you and you might be surprised that you enjoy listening!



On the next page, you’ll find a questionnaire you can ask yourself each month while analyzing your financial records. Some questions have bullet points so you can see what internal conversation you might be having based on how your finances look that month.


SCHEDULE TIME EACH MONTH TO REVIEW YOUR FINANCIAL RESULTS, THEN PLAN FOR THE FUTURE

AND SET GOALS ACCORDINGLY.


Make the Most of Your Data – Monthly Financial Questionnaire

✓ How are sales trending this month? • Did my hard work payoff in terms of increased sales? Did my slacking result in

lower sales? • Are my sales in line with prior year data, or better/worse?

✓ How are my expenses trending month-to-month?

✓ What expense categories are higher/lower than usual? • Are there any expenses that I can cut back on?

✓ Did my business have a net profit or a net loss this month? • Take a look at what sold – what items are less profitable and what items are the

most profitable? Are my best-selling items also the most profitable? If not, how

can I make them more profitable (increase the sales price or reduce the cost to

make)? • Is it time to discontinue unprofitable or less profitable items?

✓ In terms of profitability, did I do better or worse than last

month? What are the quantitative AND qualitative reasons for

this result? • Quantitative reasons would be things like more sales, you raised prices, you

lowered your web-hosting fee, etc. • Qualitative reasons would be things like you had a sale, you invested in

Facebook advertising, you sent out an e-newsletter, your shop went on vacation

for a week, etc.

✓ Based on prior months’ profitability and historical data, is now

a good time to run a sale or issue coupons?

✓ Based on my year-to-date profit, is it a good time to invest in a

new product line, a new machine, a conference, etc.?



The Price is Right? Get your expenses straight first.

Good bookkeeping and financial analysis relates to both your business’ revenue and your business’ expenses, but the expenses are by far the more challenging portion when it comes to recording, analyzing, and controlling.

Whether you’re just opening up shop or you’ve been in the biz for a while, you probably have quite a few business expenses (whether you realize it or not!). Let’s divide your business’ expenses into three categories – selling expenses, product expenses, and business expenses.

1.Selling Expenses – the costs related to putting your product

up for sale and the cost of selling it (examples include Etsy listing fee, transactional fees from Paypal, shipping charges to the USPS, etc.)

2.Product Expenses – the expenses related to creating your

products; can be further divided into the following: • Direct raw materials – supplies that go directly into a specific

handmade good that can be easily quantified and tracked (beads, length of fabric, paper, etc.)

• Indirect raw materials – supplies that go directly into a specific handmade good that cannot be easily quantified or tracked (glue, thread, paint, etc.)

• Tools – supplies or machines needed to create a set of handmade goods but are not actually a part of the finished good (sewing machine, pliers, printer, hammer, etc.)

3.Business Expenses – basically all the rest of your expenses,

including advertising, marketing, packaging materials, web-hosting, graphic design, printing, craft show fees, displays and props, etc.



It is helpful to break your business’ expenses up into these categories for a few reasons.

First, the more we categorize things, the more we simply become aware of them. We are less likely to forget to record our non-product-related expenses because they’re on our radar now. A lot of creative entrepreneurs, especially makers & crafters, tend to focus only on their product expenses. It’s easy to remember to record and track all those supply costs since you might be living with a giant pile of beads or paint. But we tend to forget about some of those non-product expenses.

Second, and most importantly, you need to know all your expenses in order to properly price your products. Your products’ sales prices are the only way your business (first) recoups its expenses and then (second) makes a profit.



Pricing can be a tricky business for handmade artisans and Etsy shop owners. You only make a profit with each sale if the price of your sold item is greater than what it cost you to make it. That’s why it’s so important to be knowledgeable about all of your expenses.

Get Going & Keep It Up!

Financial records that gather digital dust won’t do you any good. Keep working at it until you find a process that works best for you and gives you the information you need to make smart decisions for your business.

Need a little help getting your bookkeeping system set up? As both a CPA and the owner of two Etsy shops since 2011, I’ve developed a simple but effective bookkeeping tool that I rely on month after month to record, track, and analyze my financial data. I’ve finally perfected my Etsy Seller’s Spreadsheet and I’m ready to share the love with you! If you’re ready to take control of your business’ profits and dive into your data, you can start by purchasing your own Etsy Seller’s Spreadsheet here.


THE EASIER YOUR BOOKKEEPING SYSTEM ALLOWS YOU TO CAPTURE ALL OF YOUR EXPENSES IN

APPROPRIATE CATEGORIES THAT ARE RELEVANT TO YOUR BUSINESS, THE BETTER.

http://paperandspark.com/etsy-seller-spreadsheet/

http://paperandspark.com/etsy-seller-spreadsheet/


With the Etsy Seller’s Spreadsheet, you can: 1. Set up an easy-to-use system to track your revenue, expenses, and net

profit on a monthly basis 2. Automatically & quickly import your financial transactions from Etsy each

month 3. Get detailed, step-by-step instructions (by both PDF and video tutorials)

on where to find and how to import all your revenue & expenses data into your new spreadsheet

4. Track your collected sales taxes to make future payments 5. Learn how to analyze and leverage your financial data to make educated

decisions 6. Access a private Facebook group to ask your questions about Etsy shop

bookkeeping with a seasoned pro



I hope you found this ebook informative and motivating. Taking control of your Etsy shop’s financial side can be a rewarding and powerful step forward as a creative entrepreneur! You can always find more resources for Etsy shop owners at paperandspark.com.

All information in this ebook is provided for general education purposes only and is not intended to be relied upon as legal, accounting, or tax advice. We strongly encourage you to always consult with a tax or accounting professional about your specific situation before taking any action.


http://paperandspark.com/


take control of your bookkeeping & build a · 2017. 1. 11. · take control of your bookkeeping...

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