Running a handmade or vintage business is exciting but keeping track of your finances? Not so much. Bookkeeping might not be your favorite task, but it’s essential for understanding your profits, managing expenses, and staying tax-compliant.
Many online sellers make avoidable bookkeeping mistakes that can lead to financial confusion, tax headaches, or even lost profits. But don’t worry! In this guide, we’ll walk through the most common pitfalls—and how to fix them—so you can keep your finances in check and focus on growing your shop.
📌 Note: This article discusses some tax topics related to US taxes only. If you’re outside the US, consult a local tax professional for guidance. eRank does not provide legal or tax advice. This article is for informational purposes only. Always check with a tax professional for personalized recommendations.
1. Not Tracking Every Business Expense
It’s easy to lose track of small expenses, but those add up over time. If you’re not recording everything—from supplies to shipping costs—you’re likely underestimating how much you’re actually spending.
Fix It:
- Use an accounting software or a simple spreadsheet to log every expense.
- Save receipts digitally either in an app or in a cloud drive.
- Separate business and personal expenses by opening a business bank account for easier tracking.
For more information, check out Are You Keeping All Your Receipts? and 8 Tips for Separating Personal and Business Expenses on the eRank blog.
2. Ignoring Small Transactions—They Matter!
A lot of sellers only focus on big purchases but forget about small transactions, like packaging materials, Etsy listing fees, or software subscriptions. Over time, these small costs chip away at your profits if not accounted for.
Fix It:
- Record every transaction, no matter how small.
- Review monthly statements to ensure nothing gets missed.
- Use eRank’s Profit Calculator to see how these expenses affect your bottom line
Check out Optimize Profit Margins and Ad Spend with eRank for additional information on using eRank’s Profit Calculator.
3. Underestimating and Not Saving for Taxes
Handmade sellers are often caught off guard by quarterly tax payments or self-employment taxes. Without setting aside a portion of your income, you could be hit with a big bill at tax time.
Fix It:
- Set aside 20-30% of your income for taxes in a separate savings account.
- Stay ahead of quarterly tax deadlines (April, June, September, and January).
- Work with a tax professional to ensure you’re filing correctly and taking all deductions available.
Read Quarterly Tax Deadlines: How Sellers Can Stay on Track for more information about quarterly tax deadlines and payments.
4. Not Keeping Accurate Inventory Records
If you don’t track your materials and finished products accurately, you might over-order supplies or run out of stock unexpectedly. This affects cash flow and can delay orders.
Fix It:
- Maintain an updated inventory spreadsheet or use an inventory app.
- Review supply levels before major sales seasons to avoid last-minute restocking.
- Track cost per unit to ensure you’re pricing products for profit.
Not sure how to calculate your cost per item? The eRank blog article How to Calculate Your Etsy Shop’s Profit Margin Like a Pro includes the formula for cost per item as well.
5. Forgetting to Reconcile Your Accounts
Reconciling your records means comparing your bookkeeping data with actual bank transactions. If you skip this step, you might miss errors, duplicate charges, or unrecorded expenses.
Fix It:
- Schedule a monthly review of all financial statements (bank, Etsy, PayPal, Stripe, etc.).
- If using bookkeeping software, sync it to your bank to automate reconciliation and avoid missed transactions..
- Cross-check deposits from Etsy and other marketplaces to ensure you’re tracking fees and payouts correctly.
6. Not Pricing for Profit
Many handmade sellers price too low without fully considering costs, Etsy fees, and labor. This can lead to burnout and low profit margins.
Fix It:
- Use eRank’s Profit Calculator to determine the true cost of making each product.
- Factor in materials, labor, overhead, and transaction fees when pricing.
- Regularly review pricing to adjust for rising material costs or new expenses.
7. Waiting Until Tax Time to Organize Finances
Scrambling to pull receipts and sales data in April? You’re not alone. But waiting until the last minute makes tax season stressful and increases the risk of errors.
Fix It:
- Set aside one day per month to review and update financial records.
- Track income and expenses year-round to avoid a last-minute scramble.
- Work with a bookkeeper or tax pro if numbers aren’t your strong suit.
8. Not Reviewing Financial Reports Regularly
If you’re not checking financial reports, you might not realize whether your business is thriving or struggling. Many sellers only look at revenue, but profit margins and expenses tell the real story.
Fix It:
- Keep an eye on sales data from all marketplaces to track shop performance.
- Review monthly profit and loss reports to see what’s working—and what’s not.
- Set financial goals to improve profitability and business growth.
Stay on Top of Your Finances and Boost Your Business
Avoiding these common bookkeeping mistakes will help you manage your handmade business like a pro. Taking small steps—like tracking every expense, pricing for profit, and reviewing reports—can make a big impact on your success.
Bookmark this guide and stay organized year-round!
