Etsy is an excellent site for online sellers looking to get into niche markets. It also tends to be much more friendly to those just starting as its online community is open to answering any questions you may have about the platform.
The idea of monetizing your hobbies is an alluring thing for most people. With how easy it is to set up your digital storefront, the site has become a welcome home for artisans and those who love DIY crafts. However, the more laid-back atmosphere of the site doesn’t mean that there is no opportunity for business expansion.
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All Etsy sellers, whether just starting or looking to expand their businesses, should have a reliable bookkeeping system in place. Whether it’s through choosing your preferred method of bookkeeping or by making use of powerful accounting software, all these options can help you keep on top of your financial records.
Why bother with Bookkeeping for Etsy Sellers?
Many people just starting with their Etsy stores tend to ignore the business aspect for as long as they can. The best someone might do at this stage is to use paper records and notebooks for recording their financial data. However,
Although bookkeeping might not be the first thing that Etsy sellers would aim to set up, it could save you time and money down the road. Having every transaction easily captured and recorded makes sure that you know where every dollar goes in your business.
Etsy Sellers tend to have a larger number of transactions to keep track of when compared to eBay or Amazon sellers. Those on Etsy have to take into account all the expenses in manufacturing their products. After that, they have to record the expenses of selling and shipping it out to customers as well.
Most importantly, Bookkeeping allows you to create financial reports that help you to analyze how your business is doing. Everything from Profit and Loss Statements, Balance Sheets, and Income Statements help business owners in their decision-making process. Running on accurate information is important in growing your brand, so make sure to do what you can to make your record-keeping efforts efficient.
The Cons of Using Spreadsheet Templates
Sure, making use of a readily-available template may be a good step at understanding the process of bookkeeping. Excel is commonly used in small business ventures for recording purposes, after all. However, there are some cons to making use of a system that requires manual data entry.
One of the issues is the amount of time needed to enter your transactions. It also leaves you susceptible to errors as Excel does not know that you’re using it for bookkeeping purposes. The software can’t make suggestions or find errors within your manually inputted data. There is also the chance that you may forget to input certain details on your transactions, potentially leading to losses in the future.
Businesses looking to grow their operations will not be able to scale these templates to the growing volume of transactions. If you’re working on your bookkeeping efforts by yourself, it will also take more and more time to input their transactions onto spreadsheets.
Lastly, the usage of spreadsheets and templates is not the most secure method you can make use of. While it is possible to encrypt your files via passwords, other record-keeping software offers much more comprehensive security options. Spreadsheet files may also be lost or even stolen, in some cases.
Ways for Etsy Sellers to Improve Their Bookkeeping
Now, we can finally get into the ways that Etsy sellers can improve their bookkeeping methods. All of these are ideas that you can integrate into your business model to make sure that you keep an eye on what goes on in your business.
Single-entry vs. Double-entry Bookkeeping
Firstly, we’ll look at the ways that you can organize your bookkeeping efforts. Business owners can use either single or double-entry bookkeeping for keeping a detailed record of their transactions. Below is a table summarizing the differences between the two systems:
|Single-entry Bookkeeping||Double-entry Bookkeeping|
|1. Used for simple and small business ventures|
2. Only one entry is made for transactions
3. Entries are either a positive or negative amount (Revenue or Expenses)
4. Only calculates net income
|1. Used for businesses with more complex bookkeeping needs.|
2. Each transaction is recorded onto two accounts: Debit and Credit
3. Can be used to track assets and liabilities
4. Can be used in preparing financial statements (Profit & Loss, Cash Balance, etc.)
For those just starting off, the single-entry system may still suffice if you still find yourself with a manageable volume of transactions. Those who are experiencing an increase in transactions might want to look into transitioning into a double-entry system. Check which one of these is suitable for your needs, although we strongly advise making use of the double-entry system for those sellers who are looking to grow their prospects in the future.
Inventory Management Strategies
Bookkeeping does not only encompass keeping records of your transactions. It also takes Inventory Management into account, especially for those keeping larger stocks of material on hand. Various strategies can be enacted to help you in this endeavor, such as creating a specialized storage system.
Another way of managing inventory is by stocking products that you know are popular. This helps you to keep stock moving and help you to manage the expectations of your customers. Knowing when demand rises and falls is also important in managing your inventory, which makes the importance of financial statements all the more prevalent to aspiring entrepreneurs.
Larger operations may even field an SKU code system to navigate through large amounts of inventory. This acronym stands for Stock Keeping Unit code and is assigned to all items within your inventory. Etsy does support the usage of SKU tags, making it easier for online sellers on the platform to organize their growing stock of products.
Learning the tools on your Etsy Page
Sellers can make use of Etsy Stats, located in the Shop Manager tab, to check data regarding the performance of your shop. For our purposes, you’ll be able to use Etsy Stats to check in on the total number of orders sold, the revenue you made with sales and even a yearly comparison of your performance metrics between a specific time frame.
Another page that sellers can use to avoid any delays in payments is “Payment Account”, located in the Shop Manager tab. Here, you’ll be able to manage the amount due from the last month’s expenses operating on Etsy. Sales totals are tracked from the Sales & Credits tools where you can download a monthly statement in CSV format.
You may also manage your available sales funds after refunds, taxes, and fees that are owed. These funds can be deposited according to a schedule that you set. There is also the option to have your earnings deposited as soon as the next day, although it is subject to deposit minimums.
Lastly, there’s the Fees & Taxes tool which shows the amount that you owe for these items within a certain timespan. Although the website does automatically collect sales tax for items sold to customers, sellers can update the sales tax settings for those areas where this automatic collection feature does not work.
Making Use of Reliable Accounting Software
All Etsy sellers stand to benefit from the use of secure and efficient accounting software suites. If used at the early stages of your business, it’s possible to perform a more in-depth analysis of your business’s growth.
These accounting suites can connect to your various accounts and automatically input transactions onto their databases. Making use of these can also give you the benefit of having financial statements and summaries readily accessible at a moment’s notice. Some even have the option of generating these reports on a daily, weekly, or monthly basis.
Automation is another boon that accounting software provides, being able to streamline tasks that may take up your time. Whether it’s the creation of customer invoices, capturing transaction data, or even keeping tabs on the taxes you owe, making use of accounting software is key for improving the operations of your digital storefront.
Hiring Professional CPA Firms
Another option for sellers is to outsource their financial processes to professionals. CPA firms can greatly aid struggling owners to control their business. A CPA can help you by creating accounting solutions for you, organizing your financial data, and even assisting you in filing your tax returns. They also have know of ways to help you save a few dollars in taxes by making use of tax planning strategies.
It may take a while, however, to fully set up these systems. CPA firms specialized in dealing with online businesses will tend to keep constant communication with their clients to understand their situations. The more you stay in contact with your designated CPA, the more you’ll be able to learn about the bookkeeping process and how to organize your financial data by yourself.
If you’re looking for more ways to improve not only your bookkeeping efforts but also the growth of your Etsy business, then why not avail of the services that Free Cash Flow offers. Our CPA firm is solely focused on serving Online Business Owners, delivering comprehensive solutions to all your accounting and tax strategy needs. With over 20 years of combined experience, you’ll be able to focus on business growth while our agency handles your bookkeeping needs.