Saturday, 5 March 2016

Keeping Records For Your Business

Firstly I want to apologise for the delay in bringing you the next phase of our business course, unfortunately I was suffering from that really bad dose of flu that has been doing the rounds so was out of action for a while. Then something much nicer occupied my time as I went over to the UK for the CHSI Stitches Trade Show, after that I had lots to catch up on from when I was away, then it was time for our monthly Facebook sale. So as you can see it has been a very busy time lately but I am pleased to say I think I've finally caught up. Well sort of! After this blog post the website needs a desperate update so there's always something to do, but I absolutely love my life so am not complaining in the slightest. If you too are passionate about your craft business you will be happiest when you are busy. For me it's partly work and mostly fun.

Those of you who are following this online course have already learnt how to register your business name and register for tax, plus the all important how to price your handmade items. So now it's time to talk about keeping records for your business, including the paperwork you need to have and how to set up spreadsheets for the figures you'll need for your tax return.

As before I am writing these posts from the perspective of a small craft business being run on a sole trader basis. Whilst I do have experience working as an accounts clerk in 3 different accountants offices, meaning I have picked up a few helpful hints over the years, I am in no way a qualified accountant so you may wish to consult a professional for more information.
Basically your accounts need to show what comes in and what goes out of your business as in your sales and your expenses. The bigger the business becomes the more paperwork you may need to file but for now a simple profit and loss account will suffice and provide you the information you need to put into your tax return when the time comes.

You will need to have a Sales Book, a Purchases and Expenses Book plus a Cash Book. My advice would be to make up spreadsheets for these as it is by far the easiest way to keep your books. You may well want to keep a paper version too but that is up to you. If you do decide to do them via spreadsheets only, then make sure that you back up regularly and keep them on a memory stick or other storage device just in case your computer dies on you.

Your sales book is fairly self explanatory and shows the money coming into your business from sales to your customers. This is a sample of the type of columns you may find useful to have on your spreadsheet... you can see you want to list the date, the source of the sale for instance you may have your own website, a physical shop, Etsy shop and do craft fairs. It's nice to keep a record of where your sales come from for your own research if not necessarily for your accounts. You will also find it useful to know how the payment was made for reconciling your PayPal and bank accounts. The type 1, type 2 etc. is something we use because we have different facets to our online shop such as paper craft supplies, jewellery making supplies, handmade greeting cards and handmade jewellery, plus we host craft & gift fairs so again it is useful to us to know which parts of our business are working better than others and which sections our customers fall into most. Our columns are therefore named accordingly so as to identify which is which. For us it has so far been a good mix, so having the different facets works for us. You on the other hand may only sell one type of product so may not need as many columns. The postage column is very useful as you can easily see then whether you are charging enough postage, too much postage, or have it just right. Sometimes, especially when you are selling from a website, you have a fixed price per order rather than if you're using a platform type shop such as Etsy where you charge per item, so keeping track of your postage takings and expenditure can be really advantageous.
Next is your Purchases and Expenses Book, again fairly self explanatory and shows the money going out of your business such as purchases for stock and materials, postage and packaging costs, bank charges, PayPal fees, etc. and may look something like this...

...again you want to list the date and the name of the person or company you are paying. The next few columns are determining which part of the business the money is paying for. This could include re-sale stock or materials for your makes, marketing materials such as business cards, flyers etc. Your own columns may look different from ours depending on your business and can even change from year to year depending on what your spending habits are. Sundries is basically anything that doesn't fit into it's own category and is generally for small amounts. It's not enough to just keep a record of your expenses you must keep the invoices themselves as well. The best way I find is to keep a file or folder with all the invoices, bank statements and other paperwork in for each business year.
The final one is your Cash Book and will look something like this...
...the purpose of this is to keep track of all the cash and cheque transactions that take place within your business. Use it to show what money has come in that needs banking and also what cash or cheque payments you have made, as well as what monies have been lodged and how much cash you have on hand.
Those are the Books that you need to keep to comply with your tax requirements, however, I also do a Profit and Loss page which gives me a summary of the Sales and Expenses at a quick glance and looks something like this...

All you need to do is bring the total figures from the previous sheets to show your total profit or loss for the year.
These days it is common to use PayPal and other similar payment providers to make sales without the need for cash to change hands and you should be able print out reports for these from your account. I certainly can from our Business PayPal Account and always print a copy annually to keep in our accounts file. These transactions will be included in the Sales Book along with all the cash sales but not included in the Cash Book.

So hopefully that all makes sense and you can work away on your own files and spreadsheets. As always if you have any questions you are very welcome to comment below and I'll do my best to answer them, if I can.
Until next time....happy crafting

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