As a handmade business owner, you put your heart and soul into your craft, but do you know exactly where your money is going? Keeping track of your expenses is a critical step for managing your finances and ensuring the success of your business.
Why is tracking expenses so important? For starters, it allows you to see exactly where your money is going. By tracking your receipts, invoices, and bills, you can categorize and analyze your expenses to determine which areas of your business are costing you the most money. This information can help you make informed decisions about your spending, identify areas where you can cut back, and plan for future growth.
But tracking expenses isn’t just about managing costs. It also helps you stay organized and prepared for tax season. By keeping all your financial documents in one place, you’ll be able to quickly and easily file your taxes and take advantage of any deductions or credits that can save you money. Plus, accurate financial records can help you avoid audits and other issues that can arise if you don’t have a clear picture of your financial situation.
So, how do you go about tracking your expenses as a handmade business owner? There are a few different approaches you can take, depending on your preferences and the size of your business.
Consider using accounting software or apps that make categorizing and tracking expenses easy. There are many options available, from free tools like Wave or Esxpnsify to more robust platforms like QuickBooks or Xero. These tools allow you to upload receipts and invoices, track expenses by category and generate reports that show your spending over time. Word of caution, as simple as they seem, a small mistake or wrong setup could quickly turn into frustration and extra cost to have an accountant fix the problem. I suggest using this method if you know what you are doing or have your trusted accountant set it up and you are just plugging in receipts.
Good Old Fashion Paper Trail
If you prefer a more hands-on approach, you can keep a physical folder or binder where you store all your receipts and invoices. Make sure to label each document with the date, amount, and category of expense, and keep the folder in a safe, easily accessible place. Thermally printed receipts can fade over time. Make sure to write the important information on the receipt, including the proper date.
This is a great system if you are a start, but it can get messy and out of control pretty quickly as you grow your business.
Quick & Easy Paperless System
An alternative option available to you is my paperless system, which allows you to keep track of all your expenses paperless on your computer or cloud, which then can be transferred to your bookkeeper and/or accountant to add the information to your books. Or you can transfer everything to an Excel sheet yourself and just have your accountant take a look at and balance your books. The good thing is that once you’ve created this system properly, you don’t need to spend time or money on it. You can simply reuse it over and over for years to come. Click here if you like to know how I maintain 100% paperless records and my file naming system that enables you to locate any information within seconds.
In conclusion, no matter what approach you choose, make sure to rack all your business expenses, including materials, supplies, shipping costs, marketing expenses and any other costs associated with running your business. I suggest going over all your personal and business with your accountant to ensure that you are claiming everything that you could possibly claim as a business expense. And when you know the list and type of expenses that go into your business expense, make sure to separate your personal and business expenses- mixing the two can make it much more difficult to track your spending and file your taxes accurately.
As our expert speaker, Carla Thompson, mentioned at the last ACE Meeting, you can significantly reduce the cost of your bookkeeping and accounting if you do your books and keep your receipts properly.