The world of art, craft, and creation stands poles apart from the world of numbers, figures, accounts, and calculations. The social media and global market is full of enthusiasts who are pouring their heart and soul into creating things that are unique and hold value for buyers as well as sellers. Etsy is heaven for all these people who have a creative approach and are astounding the audience with their unique skills. However, there is a downside to everything, and this creative lot is struggling with the hefty but crucial responsibility of bookkeeping.
Bookkeeping for Etsy sellers is essential as it provides them with statistical data unveiling the ground realities about their business, how far they have come, and where they have to put effort to achieve more financial stability and growth.
According to Worldmetrics, the bookkeeping industry comprises over 1.7 million businesses worldwide and is estimated to grow at a Compound Annual Growth Rate (CAGR) of 7.3% in the forecasted period from 2021 to 2028. Etsy business forms a part of this growing industry. This practice is important for companies that want to gain a competitive advantage in the market.
This blog provides you with a detailed guide about the bookkeeping for Etsy sellers and how you can streamline this process with ease and accuracy with us. Let us delve into this exploration.
What are the Basics of Bookkeeping for Etsy Sellers
Before unearthing the daunting realities and navigating through the complexities of bookkeeping, let us break down the basics of this process in an easier manner. This section further explores the basic components and the role of these components in creating an accurate record of your finances.
It also needs attention that bookkeeping differs from business to business. So, what does it include for Etsy businesses? While recording and managing the financial record and transactions, they must include the sales track, the expenses, inventory and warehouse, and other important data that is related to finances.
As far as the five major components of bookkeeping are concerned, they include:
- Income: It includes all the money your store is making with the sales.
- Expenses: The amount you are spending to run your business, including raw material, manufacturing cost, delivery, and platform fee.
- Assets: All the equipment, inventory, and goods owned by your business
- Liabilities: This includes obligations your business has like debts.
- Equity: Once the liabilities are deducted, your share of ownership in the business is known as equity.
The knowledge of these components is essential to understand, create, and manage financial statements like profit and loss statements, balance sheets, or cash flow statements. They also help you to analyze the trends in business and mark out a plan that will help them boost sales and revenue.
How to Establish Bookkeeping for Your Etsy Shop
Creating a system that suits your business is the first step before getting started with the actual process of bookkeeping. This system must be capable of aligning with your business needs, requirements, and nature. Generally, there are two categorizations of how you can set up bookkeeping.
Categorizing Bookkeeping for Etsy
The first one is cash basis, which is a simpler approach, and it records transactions with the shift and changes in money. The other is the accrual basis, which records any transaction as soon as it is earned, giving you a bigger view of profit in the long run. Now, it is up to you and the state of your business which method you opt for.
Once done with choosing the method, for the next step, you can switch to automate your process with a comprehensive tool or solution according to the size, scope, and industrial needs of your business. This will make tracking and organizing your transaction easier while helping you to comply with tax laws and other regulations.
Creating Charts with Categories
Additionally, you can create a chart specific to your business that includes categories of sales, shipping, cost of goods, and other income and expenses. This will streamline your workflow and make it smooth, precise, and error-free, helping you to stay organized while you have an insight into the financial health and progress of your Etsy business.
Maintaining the Income and Expenses of Your Business
Tracking your income and the way you are utilizing your resources in business is necessary for the sake of bookkeeping for Etsy sellers. The right approach for income is to start with categorizing your sales. Now, you do not have to do this by yourself manually at all. Etsy generates a detailed report on your sales that can be imported into your relevant software to avoid any data silos and redundancies.
Now, after income settles, it is time to track your expenses. Also, for expenses, it is needless to say that you can do it without any categorization. No, you need to categorize your expenses too. So, that you can have a clear idea of where your money is going and how it is spent.
The expenses can be grouped into categories like costs of goods sold, operational expenses, and administrative expenses.
Having a structured and organized record of your expenses will clarify the cost structure and is significantly important in helping you prepare for the taxes. However, you need to review the categorization and chart periodically to evaluate any overspending or a need for a new category. This will optimize the cost and resources for you.
Clearly Distinguishing Personal and Business Finances
When you are getting started with a business or a new seller on Etsy, you are building up a foundation for your future business. A golden tip for Etsy sellers is to keep their personal and business-related expenses separate. Now, the question is if you are spending money on both sides, why does it need to be separated?
This is a common mistake made by sellers when they merge these finances. This gives a huge setback when it is time to file a tax return, as both types of finances are dealt with differently.
So, the best approach is to get a separate bank account for your Etsy business. This will help you to keep a track record of your business finances, manage it, and make informed decisions while investing, making a budget for the next fiscal half, or determining the growth of your business.
Inventory Management and Determining the Cost of Goods Sold
What is in stock, how much is available on the shelf, and how much is the capacity to produce and store goods; this all comes in inventory management. For sellers, it is important to have this knowledge and the impact it can make on the sales and profit margin of your business. Inventory management requires you to know what is already sold, what is out of stock, and when and what has to be restocked. This will optimize your cost and resources, ensuring you are never out of stock, but will also optimize the Cost of Goods Sold (COGS) and profit margin.
The second term, Cost of Goods Sold, refers to the overall price of your product, starting from raw material, procurement, manufacturing, shipping, and thus every single penny that you spend to complete your goods. Calculation of COGS correctly also impacts your pricing and profit. For a ceramic mug that costs you seven dollars of raw material and five dollars of labor, the COGS will be $12. Now, to ensure a sustainable and favorable margin profit, the price of the finished product should be kept above this price while adding other operational costs and factors.
Regulatory Compliance and Tax Preparation for Etsy Sellers
If you have trouble with mathematics, statistics, and tax preparation and compliance can be a nightmare and daunting experience for you. However, it is inevitable and indispensable for your business. Although, when you get started with a business you must be aware and know about sales tax, income tax, and other such compliances. These regulations cannot be generalized by Etsy as they differ from state to state. So, you must do your initial research first.
You need all the documents including receipts, invoices, and financial statements because they are required for this process. You can keep a digital record of these documents on drive or cloud to avoid any loss or damage and ensure easy access when and wherever needed.
You can choose software that automates and manages taxes in compliance with federal and regional taxes, making it easier for you to deal with such a complex experience.
Leveraging Automation in the Bookkeeping Process
Streamlining bookkeeping for Etsy sellers is now possible with a few clicks. Thanks to automation now, you can focus on your business and create unique items to boost sales while automation looks after your bookkeeping.
Start from automating the recurring process, such as setting bank feed and importing transactions into bookkeeping software. Setting protocols to categorize the expenses and get an insight into your profit and financial trends with scheduled financial reports. Other tasks like data entry, reporting, and categorization, which take a lot of your time, can be automated with less chance of any error or mistake.
There are several software and solutions available in the market that help you to achieve your bookkeeping in less time and hustle, with maximum accuracy and precision with its robust features.
Optimizing Growth by Evaluating Financial Growth
The next step after setting up your bookkeeping system and ensuring it is running smoothly is to forecast and analyze the extent of growth of your business. The bookkeeping provides you with a holistic view of your business, a 360-degree evaluation of growth, and greater insight into the trends that favor your business. Now, using this data and analytics, you can analyze how far your business has come and what more it needs to achieve. What are the mandatory adjustments that can bring better results and profit in the future, and what practices need to come to a halt now?
Your financial statement helps you to see what profits you most, what times of the year when they are in trend, and what practices you should do to manage your cash more effectively. Understanding your cash flow, balance sheet, and profit and loss statement equips you with a clear view of your financial situation, enabling you to foster a better approach for the future.
Data-driven Decisions with Bookkeeping Insights
With all the data, financial reports, analytics, and insights, you are in a position to make an informed, better, and data-driven decision that can help your business flourish and bloom. It allows you to make a decision that will ensure long-term success and growth for your business while equipping it to sustain itself in a competitive market even if the trends fluctuate.
You get to know if you need to change your raw material, launch a new product, change the marketing strategy, or just need some reshuffling with your current ideas to gain more sales and turbocharge your profitability.
Make Bookkeeping Easier with The Pro Accountants
The chaos of accounts, statements, invoices, and other financial requirements is already a lot to deal with for a creative artist who has to focus on creation as their main goal and business. Bookkeeping for Etsy sellers is sometimes the nightmare they want to wake up from but cannot. If you are struggling with all these issues. Here, take a break, a glass of water, and sit back while we turn your nightmare into a pleasant memory.
At The Pro Accountants, our team of financial professionals who are certified and experts in their fields facilitate people like you who are struggling to overcome the struggles of financial paperwork and compliance. We provide services for bookkeeping, taxation, and even custom software that will streamline your bookkeeping while you can enjoy that time creating marvels for the people around you.
What are you waiting for now? Let yourself out of the shackles of these complexities and contact us today to get your bookkeeping sorted.
