Last week we talked about how to price your work to make a profit, but how do you know how much money you’re actually making every month?
You could invest in an accountant or in accounting software like Quickbooks, and if you’re working on a large scale with start-up capital, that’s a great idea. However, if you’re like me, you’re rubbing your pennies together asking yourself how you can track your income for free.
The answer is pretty simple: Google Sheets.
Similar to excel, but completely free, you can create spreadsheets to track your income and expenses every month. You can make your sheets as simple or as detailed as you like.
I have a set for my soap company, Tiny Dino Soapworks that breaks each product down by ingredient and cost so that I know exactly how much I spend to make each bar of soap and how far a new tub of cocoa butter should get me. But that only tells me where my expenses are going.
While you should know how you are spending your money, you need to contrast your expenses with your income to determine if you are turning a profit.
Tracking Your Income & Expenses
- Create a google sheet with a page for each month for the next twelve months, including the month you’re in now.
- Create a column for your expenses. Record every cent you spend on your business and keep the receipt. Even if you just drop by Michael’s real quick for some tissue paper and ribbon to wrap a shipment in, record it.
- Create a column for income. Record every sale you make. In person sales, etsy sales, selling a discounted lavender sachet to your grandma for $2–I don’t care who it’s to or how much it’s for, write it down.
- I would also include a column for sales tax next to your sales column, and including the amount of sales tax due on each sale. While this is technically part of your expenses, it is something you file with your state separately (how often and how much varies widely by state, so check in with your local government for details. For instance, if I’m shipping to a state outside Kansas, I don’t have to charge sales tax, but if I sell to anyone in my state, in person or online, I do have to charge sales tax. How much depends on the county I’m selling in or the county I’m shipping it to.) Mostly, this just reminds me to file on time, but that’s important too!
- Tally up your income and expenses at the end of the month. If you made more money than you spent, congratulations! You made a profit! You might not make a profit right away, but by tracking you’ll at least know where your money went and if you can make any adjustments to your spending to help cut costs.
PRO-TIP: Make the first page in your spreadsheet a summary of each month’s income and expenses so you can check your progress over the fiscal year. Create three columns for each month, one with overall expenses, the other with overall income, and the third showing how much you made or lost each month.
If you are looking to make your handmade business your bread and butter, you’ll need to go a step further than just tracking how much money you make. You need to take your profit and split it three ways:
- 30% to taxes (this is income tax, not sales tax)
- 10% to reinvest in your business
- 60% to pay yourself
While the percentages can be tweaked depending on your needs (these are all just estimates), they are a good place to start breaking down your profit.
How to Breakdown Your Profit:
- Say for the month of June you made $500 in sales and had $150 in total expenses, then your profit was $350.
- You would save $105 of that $350 to pay your taxes with at the end of the year.
- $35 would go back into your business for supplies or advertising, etc.
- Write yourself a check for $210 for all of the hard work you’ve been doing.
If you eventually want your handmade business to pay your mortgage, start tracking your earnings now. Staying organized now will save you time and energy come tax time. And when you start growing, you’ll know exactly where your money is coming in and going out. Better yet, you’ll feel like a professional, and that’s half the battle to being confident in your business right there.