This post is guest authored by Nancy Smyth, the owner of The YarnyBookkeeper. Bookkeeping is essential for every successful crochet business and Nancy has kindly written this post for Crochet Business School so you know what is needed and why when it comes to keeping track of your crochet business finances
Bookkeeping is one of those things that many crochet business owners know they should be doing, but it tends to slide down the list behind making products, writing patterns, photographing new designs, answering customer questions, packing orders, and figuring out what on earth to post on social media this week. And honestly, that makes sense. Most people do not start a crochet business because they are excited about spreadsheets, receipts, payment-processing fees, or keeping track of how much yarn is sitting in a cupboard. But whether you enjoy bookkeeping or would rather untangle a skein that has been attacked by a cat, it is still one of the most important parts of running a business. At its simplest, bookkeeping is the process of keeping track of the money coming into your business, the money going out, what your business owns, and what it owes. For a crochet business, that means keeping track of far more than just sales and yarn purchases. There are marketplace fees, refunds, postage, packaging, craft fair costs, equipment, software, inventory, payment-processing fees, and all the other small expenses that do not look like much on their own but can quietly take a sizeable bite out of your profit. The good news is that bookkeeping does not have to be complicated. It simply needs to be accurate enough to show you what is really happening in your business.
Start With the Money Coming In
The first part of bookkeeping is recording all the income your crochet business receives. That may sound simple enough, but income can come from more places than you realise, especially if your business has grown beyond selling finished items. You may earn money from finished products, custom orders, crochet patterns, kits, workshops, online classes, memberships, affiliate income, advertising, digital products, wholesale orders, or brand collaborations. You may also receive that money in several different ways, including cash, bank transfer, PayPal, Stripe, Etsy, Shopify, Square, or another selling platform. All of it needs to be recorded. One of the most common mistakes handmade business owners make is recording only the amount that lands in the bank account. The problem is that many platforms deduct fees before sending the money to you. For example, a customer may pay you $50, but after the marketplace and payment-processing fees are deducted, only $46.50 may reach your bank account. Your sale was still $50. The $3.50 difference was a business expense. If you record only the $46.50 deposit, your bookkeeping will understate both your sales and your expenses, and that can give you a very muddy picture of what is actually going on. It is also helpful to separate your different types of income. This does not mean you need to create dozens of categories and turn your bookkeeping into a full-time career, but it is useful to know how much came from finished products, patterns, workshops, affiliate income, or any other income stream you use. Otherwise, everything gets dumped into one big category called “sales,” and you have no idea which part of the business is actually pulling its weight.
Record the Money Going Out
The other side of bookkeeping is tracking the money you spend to run the business. For a crochet business, that may include yarn, stuffing, hooks, needles, buttons, clasps, safety eyes, labels, packaging, postage, website hosting, domain names, email software, design tools, advertising, photography equipment, selling fees, craft fair fees, display supplies, insurance, bookkeeping help, classes, office supplies, and travel or mileage where allowed. The exact expenses you can claim for tax purposes will depend on the rules where you live, but the bookkeeping part stays the same. You need to record:
- the date
- the amount
- who you paid
- what the purchase was for
That last part matters more than people think. Six months from now, a bank statement showing a $72 payment to a large retailer is not going to tell you whether you bought yarn for products, office supplies, a market display, or dog food. A short description saves a lot of guessing later.
Keep Business and Personal Money Separate
One of the easiest ways to make bookkeeping less painful is to keep business and personal transactions separate. Depending on where you live and how your business is structured, you may or may not be legally required to have a separate business account, but from a bookkeeping standpoint it is one of the best things you can do. A separate bank account, payment account, or business credit card creates a much cleaner trail. When everything runs through one personal account, you end up sorting through groceries, household bills, coffee, yarn, postage, customer payments, and every other transaction in your life just to figure out what belongs to the business. That is when expenses get missed, income gets forgotten, and bookkeeping turns into a miserable scavenger hunt. And if you pay for something personally that belongs to the business, record it. Likewise, if you take money out of the business for yourself, record that too. Money moving between you and the business still needs to be accounted for. It does not become invisible just because it moved from one pocket to another.
Do Not Ignore Selling and Payment Fees
Crochet businesses often sell through platforms that deduct fees automatically. These can include listing fees, transaction fees, payment-processing fees, subscription fees, advertising fees, commission, and currency-conversion charges. Because the fees are deducted before you receive your money, they are easy to overlook. But they are still real expenses, and in some businesses they add up quickly. If your platform shows $1,000 in sales but deposits $890 into your bank account, that does not mean your sales were $890. It means you had $1,000 in sales and $110 in fees, refunds, or other deductions. Your platform reports are often the best place to find those details. They may show gross sales, discounts, refunds, shipping income, taxes collected, fees, and the final amount deposited. The deposit is only the end result. Your bookkeeping needs the pieces behind it.
Keep the Records Behind the Numbers
Bookkeeping is not only about entering numbers into a spreadsheet or software program. You also need to keep the records that support those numbers. Those records may include receipts, invoices, bank statements, credit card statements, sales reports, payment-platform statements, postage receipts, supplier invoices, mileage records, craft fair agreements, refund records, and inventory records. They do not need to live in a giant shoebox. You can save them digitally, organise them by month, or use software that allows you to attach receipts directly to transactions. The method is not the important part. The important part is being able to find the information when you need it. A faded receipt stuffed in the bottom of a project bag may technically exist, but it is not doing you much good if you cannot read it.
Understand the Difference Between Expenses and Product Costs
This is one of the areas where handmade business bookkeeping gets a little weird. Not every business cost is treated the same way. Some costs are general expenses that help you run the business, such as website hosting, advertising, bookkeeping software, insurance, email marketing, office supplies, and courses or memberships.
Other costs are directly tied to the products you make and sell, such as yarn, stuffing, buttons, clasps, safety eyes, and other materials that become part of the finished item. Those product-related costs may be part of your inventory and cost of goods sold. The exact accounting and tax rules vary by country, but the basic idea is that the cost of making a product should be connected to the sale of that product. That is different from an expense such as website hosting, which supports the business as a whole.
Keeping those costs separate gives you a much clearer picture of how much it actually costs to make and sell your products.
Inventory Is More Than Yarn Sitting on a Shelf
When people hear the word inventory, they often picture bins of yarn. That is part of it, but inventory can also include unfinished projects, finished products waiting to be sold, kits, and other supplies you are holding for sale. You may also need to account for items that were damaged, lost, given away, donated, used personally, or used as samples. This matters because buying $300 worth of yarn does not automatically mean you had $300 in product costs that month.
- Some of that yarn may still be unused.
- Some may be in unfinished work.
- Some may be sitting in finished products that have not sold yet.
The money was spent, yes, but the cost has not necessarily been matched to a sale. That is why inventory and cost of goods sold matter to you – even if your tax pro says it’s “no big deal.”
Why Cost of Goods Sold Actually Means
Cost of goods sold is the cost directly connected to the products you sold. For a crochet item, that may include yarn, stuffing, buttons, safety eyes, clasps, labels, or other materials used in the finished product. Let us say you bought $300 worth of yarn this month. If only $125 worth of that yarn ended up in products that sold, your cost of goods sold is not automatically $300. The rest may still be sitting in unused materials, work in progress, or finished inventory. This is one of the reasons handmade business owners can look at the bank account and still have no idea whether they made a profit. The bank account shows that money came in and went out. It does not tell you what the money was for or when the cost belongs in the business. Your bookkeeping does that. And no, you do not need an inventory system that tracks every three-inch piece of yarn left in the bottom of a basket. You need a system that is reasonable, consistent, and useful enough to give you an accurate picture.
Record Refunds, Returns, and Discounts
Sales do not always stay sold. Customers return items, orders get cancelled, discounts are applied, and partial refunds happen. Those all need to be recorded. A refund may reduce your income, but it can also affect other parts of your bookkeeping.
- Was the platform fee refunded?
- Did the product come back?
- Can it be sold again?
- Was it damaged?
- Did you refund the postage too?
A return is not always one simple transaction, especially when inventory and selling fees are involved.
Track Shipping Income and Shipping Costs Separately
Shipping is another area where the numbers can get muddled. When a customer pays you for shipping, that money is still income. When you pay for the postage label, packaging, tape, or mailer, those are business costs. For example, a customer may pay you $8 for shipping, while the postage label costs $6.75 and the packaging costs another $1.20. You received $8 in shipping income and had $7.95 in shipping-related costs. If you record only the difference, you lose useful information and make it harder to see whether your shipping charges are actually covering the cost.
Give Craft Fairs Their Own Reality Check
Craft fairs and markets can create a whole pile of transactions. There may be booth fees, travel, parking, food, display supplies, packaging, card-processing fees, cash sales, card sales, taxes collected, and products that were damaged or given away. It is a good idea to track each event separately. That way, you can compare what you made with what it cost to attend. Coming home with cash and fewer products can feel like a good day, but it does not automatically mean the event was profitable. You need to consider the booth fee, travel, selling fees, product costs, and all the other expenses connected to the event. Otherwise, you may have had a very tiring day out with a tablecloth rather than a profitable business event.
Keep Track of Equipment and Larger Purchases
Some business purchases are used up quickly. Others last for years. A laptop, printer, camera, market tent, shelving unit, display fixture, cutting machine, or lighting equipment may need to be tracked differently from everyday supplies. Depending on the rules where you live, larger purchases may be treated as business assets rather than ordinary expenses. You do not need to become an expert in depreciation or tax law, but you should keep clear records showing what you bought, when you bought it, how much it cost, and how it is used in the business. That gives your accountant or tax adviser the information needed to handle it correctly.
Remember That Not All the Money Is Yours
One of the less exciting parts of owning a business is realising that the balance in the bank account is not the same thing as available spending money. You may need to set money aside for income tax, self-employment tax, National Insurance, VAT, sales tax, estimated tax payments, or other local business taxes. Those rules vary widely depending on where you live, which is why local advice matters. Bookkeeping helps because it shows you how much income and profit the business is actually producing. Without current records, it is nearly impossible to estimate what you may owe. Waiting until tax time and hoping there is enough money left is not a strategy. It is more of a financial jump scare.
Do the Bookkeeping Regularly
Bookkeeping gets harder the longer you ignore it. A short weekly routine is usually much easier than trying to reconstruct several months of activity all at once. That weekly routine might include entering sales, recording expenses, saving receipts, checking platform reports, recording fees, updating inventory, and matching transactions to your bank account. If weekly feels unrealistic, do it monthly. The important thing is not to leave it until the end of the year, when every transaction looks vaguely familiar but you cannot remember what any of it was for. Regular bookkeeping also helps you catch problems while they are still small. You may spot a missing payment, a duplicate charge, a fee increase, a subscription you no longer use, or a refund that never arrived. That is when bookkeeping becomes useful instead of simply becoming paperwork for tax time.
Make Sure Your Records Match the Bank
One of the most important parts of bookkeeping is reconciliation. That is simply the process of checking that your bookkeeping records match your bank, credit card, and payment-platform statements. If your records show 42 sales but your platform report shows 44, something is missing. If the bank account shows a charge that is not in your records, you need to find out what it was. Reconciliation helps you catch missed income, duplicate expenses, forgotten refunds, incorrect deposits, and other small mistakes before they become one enormous mess.
Use the Numbers to Understand the Business
Once your bookkeeping is current, you can start using it to see what is actually happening. You can look at how much you sold, what those sales cost, how much you spent running the business, how much profit was left, and which parts of the business are doing well. You may discover that a popular product is not very profitable. You may realise that postage is costing more than you charge. You may find that pattern sales are growing while custom orders are taking up a ridiculous amount of time. You may see that one craft fair is worth repeating and another one absolutely is not. Bookkeeping does not make those decisions for you, but it gives you something better than guesswork.
The Basics Are Universal, but the Rules Are Local
The basic bookkeeping process is similar no matter where your crochet business is based. You still need to track income, record expenses, keep supporting records, understand inventory, account for selling fees, reconcile your accounts, and review your profit. What changes from country to country are the tax rules, allowable expenses, VAT, sales tax, reporting requirements, and the way inventory may be treated. That is where a qualified local accountant or tax adviser comes in. Your job is to keep accurate records. Their job is to help you apply those records to the rules where you live.
Keep It Simple Enough That You Will Actually Do It
Your bookkeeping system does not need to be fancy. It needs to show you:
- what came in
- what went out
- what you own
- what you owe
- what your products cost
- how much profit is left
Whether you use a spreadsheet, bookkeeping software, or a system designed for handmade businesses, the best system is the one you understand and will use consistently. Because bookkeeping is not only about filing taxes. It is how you find out whether your crochet business is making money, where the money is going, and what may need to change before a small problem turns into an expensive one.
About Nancy Smyth
Nancy Smyth is the owner of The YarnyBookkeeper. With more than 30 years of bookkeeping experience and her own background as a handmade business owner, she helps makers understand the unsexy side of running a creative business, including income, expenses, inventory, cost of goods sold, pricing, and profit. Learn more at https://yarnybookkeeper.com/
