For many creators, the draw of Etsy is undeniable. It’s a platform that celebrates craftsmanship and connects makers with buyers looking for something handmade and unique.
However, as any seasoned seller knows, managing a successful Etsy shop isn’t just about crafting and creativity—it’s also about smart business practices.
Effective bookkeeping is the backbone of a thriving Etsy store, ensuring you stay profitable, scalable, and legally compliant.
In this comprehensive guide, we cover everything you need to know about Etsy bookkeeping. Whether you’re new to Etsy or looking to sharpen up your financial strategies, this post is tailored to help you manage your shop’s finances seamlessly.
☞ Need to get your Etsy bookkeeping in control?
Try Craftybase - the award winning inventory AND bookkeeping solution for Etsy sellers. Track expenses and revenue, raw materials and product stock levels (in real time!), order management, COGS, pricing guidance and much more.
It's your new production central.
Understanding Etsy Bookkeeping
What is Bookkeeping?
Let’s start with the basics: the term “Bookkeeping” involves recording, maintaining, and retrieving financial transactions for a business.
Bookkeeping for Etsy sellers generally involves tracking your sales, materials, general expenses, fees, and taxes.
So, what’s the difference between bookkeeping and accounting? While the terms are often used interchangeably, there is a distinct difference that it’s important to point out from the get-go. Bookkeeping involves the daily recording and organizing of financial transactions, while accounting is the process of interpreting and analyzing that data to make informed business decisions. This guide is going to cover more of the bookkeeping side of things (we’ll assume for the most that you’ll have an accountant to help you drill into the data).
4 Reasons Why Bookkeeping is Important for Etsy Sellers
As an Etsy seller, being on top of your bookkeeping makes a lot of your maker life much easier. Here are 4 reasons why bookkeeping is essential for Etsy success:
1. Keep track of expenses Having good Etsy Bookkeeping practices allows you to truly understand your expenses, making it easier to monitor your cash flow and make better decisions based on this.
2. Understand profit margins By tracking your sales and expenses (and material costs), you can also calculate your profit margins. This is absolutely crucial for setting prices and determining the profitability of your products. Without this bookkeeping diligence, you are left to making guesses that can be detrimental to your business growth.
3. Stay organized for tax season Bookkeeping ensures you have accurate and up-to-date financial records, making it much less stressful and time consuming to file taxes and avoid any penalties or audits (which eats your time if you get caught in this position).
4. Plan for growth With good solid bookkeeping for your Etsy business, you can analyze your business’s financial health and make informed decisions about future investments, expansions, and hiring.
Etsy Bookkeeping Best Practices and Tips
In this section, we’ll unveil some of the most effective bookkeeping best practices and tips specifically designed for Etsy shop owners.
Keep Your Personal and Business Finances Separate!
One of the first steps in professionalizing your business practice is separating your personal and business finances - you’d be amazed at how many successful sellers I meet that skip this (quite simple) step and realize they have a bookkeeping mess on their hands to sort out down the track.
Open a business bank account and use it exclusively for transactions related to your Etsy shop. This simplifies your financial management and makes it easier to monitor business performance.
Read more:
Record Transactions Diligently
Every sale, expense, and business transaction should be recorded somewhere consistent and categorized properly - at a basic level, this is purely so you can find records when you need and tally them into groups to understand costs.
For Etsy sellers includes costs related to materials, shipping, Etsy fees, and any other operational expenses.
As we have discussed, detailed records help you understand where your money is coming from and going and how it affects your profitability.
I know - you’re a maker, not an Excel spreadsheet wrangler - but trust me, getting a system in place that captures everything in one easy spot is going to save you hours of your life.
Read more:
- How to keep good records for your craft business →
- How do I download a report of my sales and orders from Etsy? →
Track Your Inventory
For makers, inventory management can be a challenge: especially if you have never been someone who has had a less than organized approach to their craft.
However, the fact remains that keeping track of your inventory is essential for accurate bookkeeping and understanding your business’ financial position. Without it, you aren’t going to know how much your products cost to make, and how much stock you have on hand and need to buy.
Be sure to record the cost of materials and supplies used for each product, as well as any leftovers or scraps (this is commonly known as your COGS - Cost of Goods Sold). Knowing this will help you understand your true product costs and adjust pricing accordingly.
Read more:
- Managing your Etsy Inventory: The Ultimate Guide for Sellers
- Common Etsy Inventory Errors and How To Fix Them
Understand your Tax Obligations as an Etsy Seller
As a business owner, it’s essential to understand your tax obligations and ensure you are complying with all laws and regulations. It’s simply not a valid excuse to say you “didn’t know” - you’ll be potentially audited and fined if you are found not to be complying with your tax requirements.
This includes state and local taxes on sales made through Etsy, as well as any income tax that may apply.
Read more:
- Etsy 1099-K: Your Complete Guide
- Do I Have To Charge Sales Tax on Handmade Items?
- Schedule C Guide for Etsy Sellers
Utilize Bookkeeping Software
Although it is certainly possible to use the old pen-and-paper approach or spreadsheets to track your finances, these old-school methods can be time-consuming, difficult to update, and prone to human error.
Consider instead utilizing bookkeeping software designed for small businesses: these days, these programs can automate many bookkeeping tasks, and connect to many different data sources saving you time and reducing human error.
Of course, saying this, if you are REALLY into spreadsheets, we have a free Etsy bookkeeping spreadsheet available here you can use.
Some popular options for Etsy sellers include Craftybase, Quickbooks, Wave, and Xero (we’ll discuss each of these in detail below).
Most of these tools can automatically track and categorize transactions, calculate COGS, generate reports, and even assist with tax preparation.
Regularly Review Your Finances
Don’t wait until tax season to review your finances. Make it a habit to check in on your financial reports and statements at least once a month. This will help you catch any discrepancies or potential issues early on before they become a massive headache you have to untangle later on.
Understand The Etsy Fee Structure
Etsy charges a variety of fees, including listing fees, transaction fees, and payment processing fees. Make sure you understand these charges and how they impact your finances. Many sellers underestimate these costs (often quite badly) and end up in a position where they are working hard on adding $$ to Etsy’s bank balance and not their own.
Our Etsy Fee Calculator can show you quickly how much you are likely to pay in fees and charges for a sale.
Find your Finance BFF
Bookkeeping can be overwhelming, especially if you’re a busy maker with limited time and accounting experience. Consider hiring a bookkeeper or accountant who specializes in Etsy shops - you don’t need to get anyone full-time, most financial experts work on an hourly or monthly retainer rate.
They can help you set up your finances correctly, provide valuable advice on tax deductions, and ensure you stay compliant with financial regulations.
Software Options for Etsy Bookkeeping
QuickBooks for Etsy
QuickBooks offers an integration specifically designed for Etsy sellers. It automates the process of categorizing sales and expenses, making it easier to keep track of your shop’s financial activities. QuickBooks also provides valuable insights through financial reports. On the flipside, to be useful to Etsy sellers who are making their products in-house, you’ll need to subscribe to the higher plans that include inventory and COGS tracking (which infuriatingly don’t come with the Etsy edition).
Xero
Xero is another robust accounting software with features beneficial to Etsy sellers. While it doesn’t have a direct Etsy integration, you can connect it through third-party applications. Xero’s strength lies in its comprehensive financial reporting and easy-to-use interface. Where it doesn’t shine so well is COGS and inventory calculations - you’ll need to find software for this purpose and integrate the two together if going with this approach.
Craftybase
Craftybase is a very popular Etsy bookkeeping software choice due to its strong focus on handmade businesses. In addition to expense and revenue tracking, it offers inventory management, cost of goods sold calculations, and detailed reporting features. Craftybase also integrates directly with Etsy (amongst many other popular sales channels) for easy order and fee importing on a daily or hourly basis.
This solution comes with a 14 day, fully featured credit card free trial and a range of very affordable plans to support makers of all stages. Try for 14 days today →.
Wave
Wave is a free accounting software that’s particularly appealing for small Etsy shops and sole proprietors. It offers essential features like income and expense tracking, invoicing, and receipt scanning. Although it lacks direct Etsy integration or inventory and COGS tracking, it’s a cost-effective solution for basic bookkeeping needs.
Conclusion
Mastering bookkeeping may not be why you started your Etsy shop, but it’s essential for your business’s success. By implementing these best practices, utilizing the right tools, and possibly enlisting professional help, you can ensure your shop remains profitable and poised for growth. Remember, behind every successful Etsy shop is a solid understanding of its finances.
Navigating the complexities of bookkeeping can initially seem daunting, but with the right approach, it becomes an invaluable part of your business practice. Not only does it build a foundation for informed decision-making, but it also paves the way for sustainable growth and success on Etsy.
We hope this guide empowers you to tackle your Etsy bookkeeping with the confidence you need.
If you have any questions, please feel free to get in touch!
☞ Need to get your Etsy bookkeeping in control?
Try Craftybase - the award winning inventory AND bookkeeping solution for Etsy sellers. Track expenses and revenue, raw materials and product stock levels (in real time!), order management, COGS, pricing guidance and much more.
It's your new production central.
