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Many craft and handmade business owners sort of "fell" into their businesses. Maybe you started out making things that people loved, and decided to try selling them. And yay! People started buying your creations.
So you started making more, and then thought about maybe attending a craft show or two. And as your business grew, so did your income and your expenses. Eventually, you realized you have money coming in and out, but it's hard to keep track!
Sound familiar? I get it! Talking about money can make you feel “icky”.
But when it comes to running a business, you absolutely must have your finances in order. Not only is it important when *cringe* tax time comes around, but having separate accounts for your business finances can help you see if you’re actually making money!
Shop around for a business checking account with good rates (preferably free). Most banks have them, and it should be completely separate from your personal accounts.
In order to open an account you may need an EIN from the government (it’s an employer identification number, and you don’t need to actually employ anyone other than yourself in order to get one.)
The EIN will be used for anything related to your business taxes, and if you want to create an LLC or Corporation for your business down the road, you’ll need this number. It’s free and only takes a few minutes to apply online.
These will allow you to make purchases without using your personal accounts. They also help you track expenses, as most business cards will give you an itemized list of purchases.
Make sure you use your business cards for business purchases only! It gets really messy when you start using personal cards for business and vice-versa.
Have all income deposited into your business account, and then pay yourself a salary. Transfer the money on “pay day” into your personal account. And then wait until the next pay day before taking more out! Train yourself to live off your salary, so that you have enough money in your business account to cover your expenses.
If you have trouble keeping track of your business finances, consider using software such as Quickbooks, Xero or GoDaddy Bookkeeping. Most of them can connect to your business accounts and will keep track of your income and expenses.
Using bookkeeping software also makes tax time SO much easier. No more crying at 2am as you input line items into excel and then realize the formulas weren’t done correctly and nothing is adding up (yes, true story...don’t let this happen to you!)
If you’re using your cell phone for a lot of business transactions and calls, you can claim that expense when doing your taxes, so keep track of the percentage of time you use your phone for business.
The same goes for miles on your car that are used for business trips. If you travel a lot, such as for weekly craft shows, there are apps for recording mileage such as MileIQ, but if you only use the car for business once in a while then you can record the miles manually.
You’ll be surprised at how much paper you still accumulate, even in this age of the Internet! Take some time to organize your workspace and you’ll not only find it’s easier to keep track of things, but you’ll also have more time to do what you love - creating!
Create files for each expense, such as cost of goods, marketing, fees for website, etc. At the end of the year, file your receipts along with your tax information, just in case the IRS ever decides they need to take a peek at your books.
From giving you a clear picture of how much money your business is actually making, to making it easy to gather and submit your tax information when it’s due, separating your business finances just makes sense.
The sooner you get a system going, the easier it will be to manage your cash flow as your sales (and expenses) increase.
And if you’re just starting out, I invite you to check out my Craft Business Kickstarter! It’s a complete guide to get the “business” side of your handmade business up and running. Click below to find out more!