If you are an Etsy seller, you know how difficult it can be to keep track of your sales. However, with proper bookkeeping, you can gain valuable insights about your business that could help you succeed. With a few smart strategies and the right tools, it’s easy to keep financial records up-to-date without spending extra time or money. From tracking income to managing expenses and taxes, this article will break down all the necessary components so you can start bookkeeping effectively for your Etsy store today.
Calculating your profit from Etsy means tracking all your expenses and subtracting them from your income. Your revenue and costs, which are processed through Etsy, can be found on your Etsy monthly statement. But this is only half of the story. For example, suppose you have material, or ongoing expenses, outside of Etsy. In that case, these expenses also need to be recorded and subtracted from your income.
This may seem obvious and easy to manage. Still, complications arise if shipping is involved and if you want to understand if there are any tax implications for you. Read on to find out how to get a complete picture of your business in just 2 easy steps.
Etsy Sales Tracking
When I first started selling on Etsy, I was so excited about making money from something I created that I didn’t really worry about keeping track of the numbers. As I sell digital stuff, I didn’t think it mattered. However, I soon discovered keeping track of my financials was a nightmare using the figures Etsy provided.
There is not one single file you can download from Etsy that will tell you how much profit you have made. This is from an Etsy point of view if you have shipping and need to calculate your tax by country or state or from a business perspective. Etsy has no knowledge of any additional costs that you may have, such as manufacturing costs or general overheads. So you need more than the Etsy data to give you a complete picture of how your business is doing or, indeed, if it is profitable.
After much research, I finally worked out how to do my bookkeeping with ease every month to know how much profit I actually make. Follow these steps, and you will be well on your way to Bookkeeping nirvana.
Step 1: Set Up Bookkeeping System
You can use many tools to keep track of your financials, but keeping them in sync with your Etsy data is still not straightforward. Indeed Etsy only has one ‘approved’ integration, Quick Books. Unfortunately, for someone based in the UK, this integration appears only for US sellers, so I have yet to experience using it. Plus, if you are still waiting to sell many items, who wants to spend $15 a month!
Keeping the figures in a spreadsheet works well for me, and I will keep using this until it takes too much time. I created my own bookkeeping spreadsheet that helps me. Now all I need to do is export two files from Etsy and any data from other income and expense streams, and I’m done. This can take as little as 30 minutes a month.
I also file all physical and digital receipts for expenses in a file marked with the date for each month, and I file each year separately. It is easier if you use the tax year, which in the UK is April to April, but work with whatever works best for you.
To get started, determine which categories you want to use for the different types of income and expenses you process each month. If you consistently categorise the same kind of income or expense in the same way, it will help you spot trends.
In addition to your categories, be sure to regularly check your bank accounts for incoming payments or outgoing transactions. Good bookkeeping habits will help ensure that all financial information is captured accurately and up-to-date. With a little effort now, you’ll thank yourself later when it comes time to file your taxes or review your financial performance.
Step 2: Track Income and Expenses regularly
When it comes to tracking Etsy sales, Step 2 is all about monitoring income and expenses frequently. Please don’t leave it until the last week of the tax year unless you want to get completely overwhelmed. It’s essential to keep tabs on your finances regularly to maximise your profits and remain organised.
Pick a day of the month you will sit down and do your accounts. For example, I use the first Monday of the month because that is the day Etsy will pay me. This means I am better prepared to check the amount they send. But again, do what works best for you.
You may prefer to break things down more so you can do it more often rather than saving everything up for a monthly binge. For example, suppose you have a lot of transactions or payment streams. In that case, you may find it easier to spread the data collection by separately working on your income and then on your expenses. Or working by payment stream might work better. Setting aside a specific daily or weekly time to capture everything might be more effective.If you need to catch up with your bookkeeping, feel free to download our Bookkeeping Checklist to ensure you get back on track. It includes a 12-week plan that will catch you up by the tax year’s end. Click here to download
Once you have decided on all the different elements, compile them all together in your brand style guide. Reference this brand style guide for everything that your customer will see to build your brand on Etsy.
Why is it important to track your expenses?
It is essential for any business, big or small, to track its expenses to ensure the financial health and success of the company. Keeping an accurate record of your spending will benefit you in the short term and allow you to plan better for future expenditures. For Etsy sellers, understanding your income and expenses can be vital in navigating the often unpredictable online marketplace.
Your bottom line profit is the result of your income minus expenses. So you need to track your expenses properly to understand how much profit you are making.
In addition to it being helpful to work out your profit, many of your expenses can be tax deductible, meaning you could pay less tax.
What Expenses Should You Track?
As a seller, knowing what expense you should track is essential. Here is a list of some expenses that qualify as a business deduction. However, different expenses may apply based on your business or country, so consult with your local tax authority to ensure you cover everything.
Some standard deductions may include the following:
- Selling fees
- Monthly or yearly subscriptions such as QuickBooks or Adobe
- Internet or phone
- Business Travel Expenses
- Car usage
- Shipping and postage supplies
- Office Supplies
- Training Classes
Tracking your sales and expenses for your Etsy business is easier than you may think. And the more you incorporate it into your routine, the less overwhelming it will become. Make tax time less stressful than it needs to be and get ahead of the pack by assessing what needs to be tracked, and then find a method that works best for you so you can stay on top of it at least once a month. Before you know it, you won’t remember what the problem was.