No matter what kind of business you run, it’s important to have an accurate understanding of your shop’s financial health. Keeping track of your expenses helps you make more informed decisions — and helps you avoid surprises like an unexpectedly large tax bill or unnecessary debt.
Whether you use accounting software or more old school methods, knowing how much money is coming in and going out is the first step toward better bookkeeping. Read on for tips for managing the financial side of your business and a free tool you can use to track your expenses.
Find a Method That Works for You
Experiment with bookkeeping methods until you find the technique that suits you. If it feels like too much work, you probably won’t do it. Make tracking your expenses part of your routine by regularly scheduling time to balance the books and document any purchases made that week. (Read 5 Simple Ways to Ace Bookkeeping for more ideas that make the process painless.)
Vintage seller Wendy Freeman of Fayetteville, North Carolina-based shop Hilltop Cottage carries a small notebook in her purse while shopping estate sales so she can take notes on how much she spends. She also tucks receipts for packaging purchases inside, to keep all her expenses in one place. “I just do what works for my personality,” she says.
If you purchase many of your supplies online, a digital method might work better for you. For example, Marissa Robertson of Lola and Stella, a toddler and baby clothing shop in Portland, Oregon syncs her Outright account to the PayPal account she uses to purchase fabric and supplies. That way, all of her expenses are accounted for automatically. Every month, she sets aside some time to add any in-person purchases. Having a separate checking account for her business also helps Marissa see what she’s spending at a glance. “I’ve done that since the very beginning,” she says. “I think it’s very important.”
Get a Clear Picture of What’s Coming In and Out
Knowing exactly how much you’re spending on the supplies and materials that go into your products can help you make sure you are setting the right prices and that you’re accounting for your own time and energy.
Alba Bordes of wall decal shop Made of Sundays in Helsinki, Finland keeps track of all of her expenses, including rent on her studio, electricity and materials, by digitally scanning her receipts. She makes a note of what she purchased, and saves them to folders on her computer organized by month. She then compares her expenses to her monthly sales report to calculate her profit. “This way, I can clearly see if I’m spending too much on some areas and hopefully correct it next month,” she says.
When you can see the whole picture of your finances, it’s easier to identify areas where you can cut back. Packaging is one area where Wendy of Hilltop Cottage has been able to trim costs by repurposing recycled boxes for shipping her items. Wendy even asks friends and family to save shipping boxes for her. Wendy has also cut shipping costs by sewing patterned paper into custom envelopes for less fragile items such as the letter blocks she sells in her shop instead of buying standard bubble mailers. Not only does this help boost her profits, these pretty handmade envelopes are a welcome surprise in customers' mailboxes that help Wendy distinguish her brand.
See What’s Working and What Isn’t
Tracking expenses on a per-item basis can help you make long-term decisions about how to expand — or focus — your product line. To do this, you should document the expenses, including materials and labor, for each item or item category in your shop. When you can see how much you’re spending to make each item and how much customers will pay for it, you can identify the products in your shop that bring you the most profit. This knowledge can help inform your decisions about what new products could help your shop grow or which items are not worth your time.
Shortly after starting Lola and Stella in 2013, Marissa began tracking her expenses per item in a spreadsheet. In the spreadsheet, she breaks down the costs of the fabric, packaging and her Etsy and PayPal fees. “Looking at that information told me that I needed to price my items a little higher to make a profit,” she says. It also helped her identify items with profit margins that were too low for the amount of time she spent on creation. “You realize you either need to find a faster ways to make something, or you need to stop making it,” Marissa says. “The economy of your time is very important.”
For a vintage seller like Wendy, keeping track of which items have the largest profit margins — and also resonate with her customers — means she can keep an eye out for similar goods when bidding on vintage lots online or attending an auction.
Set Yourself Up for Future Success
A clear picture of your business’s financial health makes it easier to plan for future expenses, like the purchase of new equipment, or other steps that can help accelerate your growth, like hiring help.
When Alba first launched Made of Sundays, she was cutting her wall decals using a very small plotter, her home printer and a laptop. She listed just a few items in her shop to start, because making each decal was time consuming. When she started making some sales, she set aside some of her profits each month to go toward the purchase of larger equipment that would save her time and help her shop grow. “It’s taken time and patience for my business to grow this way," she says, "but I sleep better at night knowing that I don’t have to pay back a loan or owe someone money.”
If you want your expense tracking to be accurate, it also needs to account for your time. Marissa researched hourly wages for seamstresses in her area and figured that amount into her prices, based on how long it took her to sew each item in her shop. When Marissa decided to shift her focus to other aspects of her business, she could afford to hire a seamstress on a contract basis, without having to raise her prices, because she already included labor in her expenses.
To start keeping track of your expenses, including raw materials and labor, you can use this free worksheet created by Graham Ashcraft, a curriculum specialist at Etsy. This spreadsheet can be used to track your expenses on a monthly or yearly basis.
Download the Expense Tracking Template
Regardless of what method you use, tracking how much you spend is the first step to increasing how much you make. “I imagine a steady, slow growth for my business,” Alba says. “No matter how small your business is, it’s good to have everything well organized and keep track of your sales and expenses from the beginning.”
Words by Taylor Combs
Taylor Combs is a writer and editor for Etsy's Seller Handbook.
