If you are looking for craft business accounting, that is good news.
It implies that your business has scaled to attract profits worth taxing.
As a small business owner, scaling remains the ultimate target.
But with scaling comes issues like taxes. Taxes end up eating most of your bottom line.
Thus, a small business owner ends up in the vicious rut of working more to save more.
But you need not worry about losing your hard-earned money. There is craft business accounting to take care of that.
To know more about it, read further.
How To Do Craft Business Accounting
Before stumbling upon how to do it, let’s dabble into —–>
What Is Craft Business Accounting?
Accounting is a generic term common with all sorts of businesses.
In reference to a craft business, it is about maintaining the bills and income of a handmade business.
In simple terms, craft business accounting is about knowing your earnings and expenditures.
Craft business bookkeeping is another synonym for craft business accounting.
Why Do Craft Business Accounting?
It is not enough to know the sources of earnings and spending. Earnings as well as expenditures have further bifurcations.
Those divisions help to know under what header to place every entry. This further helps with the following:
1. Knowing the best and worst sources of income.
2. Knowing what expenses drain the most.
3. Putting expenses in appropriate headers to save taxes.
How To Do Craft Business Accounting?
You should know what to account for to start bookkeeping for the craft business.
To start, you can have a broad classification of income and expenses. It is as simple as Credit and Debit.
Credit(Income) comes in and Debit(Expenses) goes out.
Within Income, you can further classify as per sources below:
1. Website Revenue
This refers to all sales made through the website in a specific period. It would include physical and digital products as well as services.
Moreover, commission projects and one-on-one consulting are also included. As long as the sales could track back to the website, it would fall under website revenue.
2. Revenue From Physical Stores And Fairs
Whatever you earn through your brick-and-mortar store(s) comes under this. You can include your kiosks in craft fairs and farmers markets also under this one.
3. Revenue From Collaborations
As a small business owner, you can tie up with other businesses to trade in customers. These could be through physical setups or online modes as well.
The business generated from this sync goes under collaboration revenue.
4. Revenue From Various Third-Party Digital Platforms
It is obvious that as a handmade business owner, you would have an Etsy store.
Since you cannot risk keeping all eggs in the same basket. Therefore, you could have other platforms to sell as well.
Gumroad and Instagram are popular platforms for creative makers.
5. Affiliate Income
This income comes through selling products of other businesses.
As a small business owner, you cannot cater to a large group of audience. Hence, you can sell products of other businesses to offer complementary products.
For instance, I recommend my competitors’ products in domains where I lack knowledge.
Likewise, you can bifurcate Expenses. The major divisions for debit are Cost of Goods Sold (COGS) and Operating Expenses.
COGS refers to the direct expenses involved in making a product. In contrast, the Operating expenses are the indirect costs.
Thus, COGS includes the cost of materials as well as costs of shipping and packaging.
Hence, every other expense comes under Operating expenses. Some of those costs include:
- Utilities
- Office space rent
- Website Hosting
- Employee salaries
- Vendor expenses
- Marketing costs
Top Rated Craft Business Accounting Software
1. IntuitQuickbooks
This one is the most popular accounts receivable and payable management software.
It has all the possible features needed for a small crafting business.
The software can do all the important tasks like accounting, payroll, and budgeting.
It costs less than 100$ a year with basic features. It only works for some of the geographies. Hence, check for your country before zeroing in on this one.
2. Craftybase
This software costs 240$ a year for its basic features. However, you also get to try risk-free for 14 days.
This ERP-based software is popular for COGS and inventory management.
Under its Bill of Materials, you can further divide the costs of the base. For instance, if you are into the handmade hair products business. Then, you can pre-calculate and fix pricing for each base. That way you can have effective pricing and production cycles.
So, each niche will have pricing based on the base of oils, waxes, and labor involved.
Craftybase also provides live pricing suggestions for increasing profit margins.
That is why it is popular with makers as a go-to choice for craft business accounting.
3. TopNotepad
This one is the simplest of all the software available in the market.
Its clean user experience tracks invoices and expenses with ease.
You can also send quotations through its inbuilt templates.
It is one of the best craft business accounting software for the newbies. You can experience its free trial period to determine if it suits your needs.
Their long-term plans offer huge savings.
You can start with this craft inventory app till you graduate to more feature-rich ones.
Conclusion
The earnings of a small handmade business are meager. That is why whoever starts a small business, never thinks about taxes.
But with an upsurge in sales, the business grows. That is when the growing business attracts taxes.
Taxes seem like a hole in the bucket as they drain all your hard work. But it does not have to be that way.
You can reduce the impact of taxes by being mindful of your expenses.
Of course, hiring a tax consultant is the best way to go forward. Otherwise, you can familiarize yourself with the basics of craft business accounting.
It is daunting to maintain records of every expense and invoice. But there are a few software to help in the process.
This article gives a simple overview of the entire craft business bookkeeping. You can take it as a stepping stone to form the economic structure of your business.
Do share it with someone you know who is struggling with taxes in their small business.
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