Bookkeeping! Every creative entrepreneur’s favorite topic. One of the first steps with setting up shop is to choose and set up a bookkeeping system for your business.
It can be challenging to navigate the murky waters of options if you aren’t totally clear on what you should be looking for in a bookkeeping system.
As a maker myself AND an accountant, an ideal bookkeeping set up for makers includes the following:
- Easy to use (user-friendly and easy to set up)
- Reliable (cloud-based)
- Makes tax-time easier (keeps a running tab of net income so you know what to expect, and categorizes expenses in a tax-friendly way)
- Includes inventory functionality (an often overlooked issue that makers need for tax time!)
Of course, bookkeeping systems aren’t one-size-fits-all. A lot depends on what type of products you sell and what your bookkeeping & tax needs are (whether you have employees, type of entity, etc.).
As an Etsy shop owner, maker, and accountant, I recently tested out and compared three popular bookkeeping options, QuickBooks, GoDaddy, and Wave, plus I created a 4th option, Paper + Spark.
Below, I summarize the results of my testing in order to help you figure out which system best fits your personal biz needs. I’ve also got a handy quick guide for you to download.
If you’re really curious, you can watch this video, during which I attempt to actually set up my Etsy shop in QuickBooks, GoDaddy, and a Paper+Spark spreadsheet and compare the resulting numbers.
The results were interesting to say the least!
QB is basically the big mama when it comes to bookkeeping software. QB has a few options covering a span of capabilities and price ranges, from QuickBooks Online Simple Start ($10/mo) to QuickBooks Desktop Pro ($200-$300). There’s also the popular QB Self-Employed, which Etsy has recently endorsed.
- Nearly every accountant or tax preparer out there is familiar with QB, so there are lots of opportunities to get support, outsource, or hire someone to review your work in this system.
- QB online & QB Self-Employed have lovely phone apps that make bookkeeping on the go simple and accessible (I mean, who doesn’t love to “bookkeep on the go”, right?!).
- QB integrates with Etsy, PayPal, and most banks, which theoretically makes importing in your transactions each month an automated breeze (see my video for how fun that was).
- QB offers tons of additional capabilities as your business grows – like payroll, Turbo Tax integration, bill pay, invoicing, 1099 creation, and more. These functionalities are great for bigger Etsy shops. Note that many of these functions are only available with the higher-price options.
- QB will keep a running tab on your suggested estimated quarterly tax payment, which I find super handy.
- The most affordable versions of QB do not include inventory management. In fact, only the most expensive versions do. It’s particularly frustrating that QB Self-Employed, now recommended by Etsy, has no inventory capability, since this is something that most makers and artists specifically need for tax purposes. In order to deal with the inventory side of things, you need QB Online Plus (currently $50/mo), QB Desktop Pro ($200-$300), or you need to use an outside solution for inventory specifically.
- In my humble opinion, QB is cumbersome; it’s more than the average Etsy shop owner needs to deal with bookkeeping. The learning curve can be steep and it’s not particularly user-friendly. There’s a reason why there are so many QB certified bookkeeping experts for hire out there!
- Auto-importing transactions from outside sources can easily and quickly lead to errors. Issues like duplicate transactions, missing transactions, or items being wrongly classified are common occurrences. I personally experienced issues with QB treating PayPal transfers as income (double counting all my PayPal sales) and incorrectly recording my Etsy bill payments. It takes time to troubleshoot these issues and can be difficult to do if you don’t know what to look for.
WaveApp, a relative newcomer on the bookkeeping scene, is growing in popularly amongst creative business owners.
- It’s totally free! That’s a pretty big pro. You only have to pay for additional functions like payroll.
- Wave also integrates with Etsy, PayPal, and many banks, so you can automatically import in transactions.
- Since Wave is totally online, it’s a cloud-based system so your data will always be around. It’s not tied down to your hard-drive (which may crash someday).
- Wave is simply less robust than more popular systems like QB or GoDaddy. It takes a bit more clicking around to figure things out. It’s not quite as self-explanatory as the other systems I tried out. In my experience, it’s a bit better suited for service providers and freelancers than for product sellers.
- Wave also does not support the inventory functions that makers & artists need to correctly track inventory for tax purposes. You should use an outside system to keep track of your inventory costs for taxes.
- Like I mentioned with QB (or any system that automatically imports your transactions), auto-importing transactions from outside sources can easily and quickly lead to errors.
GODADDY (FORMERLY OUTRIGHT)
GoDaddy is another popular option with Etsy sellers, and seems to be a bit more user-friendly and affordable than QB. There are currently three options, ranging from about $4/mo to $15/mo.
- As mentioned, GD is relatively inexpensive compared to QB.
- GD also integrates with Etsy, PayPal, Amazon, and many banks, so you can automatically import in transactions.
- It can plug your transactions into a handy Schedule C tax form for you at year-end to streamline the tax process.
- You can also use GD to track mileage and send invoices.
- Cloud-based (so you never lose your data – as long as you keep paying!)
- Like with QB and Wave (and any system that automatically imports your transactions), auto-importing transactions from outside sources can quickly lead to errors. When I tested out setting up GD, I personally experienced it double-counting all my transfers. Transfers from Etsy, transfers to pay myself, etc., were all double-counted and threw my numbers off drastically. It also wrongly categorized many business expenses as non-business transactions. Watch my video to see how my initial set up went.
- GD also does not support the inventory functions that makers & artists need to correctly track inventory for tax purposes. You will need to use an outside system to keep track of your inventory costs for taxes.
THE HIDDEN DOWNSIDE OF AUTOMATICALLY IMPORTING TRANSACTIONS
The biggest potential issue of QB, GoDaddy, or any system that automatically integrates data from outside sources is that people often blindly rely on the software to do the work for them. Anytime you have a robot sorting your transactions for you, bad things can happen.
It might be something as harmless as putting your postage label costs as “advertising” rather than “office expense”, or it could be double counting your Etsy sales imported directly from Etsy with your actual Etsy deposits in your bank account. Five months in, you notice your Etsy sales are totally off, and you’re left scratching your head wondering why.
At year-end, I see a lot of makers scrambling to troubleshoot why their bookkeeping system’s numbers are so different from their Etsy, PayPal, or Amazon reports. A bookkeeping system that you can’t trust to be correct is no help to you.
That being said, I definitely do not mean to imply that these systems are not worth considering. I just want you to be aware that the numbers are usually not going to be correct right “out of the box”.
No matter what system you use, you must double check the numbers and make sure everything is set up correctly.
Check that transfers between accounts aren’t being counted as revenue or expenses. Set up rules so that repeat transactions are classified correctly each time. Take the time each month to review your books and reconcile.Verify that transactions are classified correctly and the numbers make sense and match to external reports. As long as you are a diligent bookkeeper, these systems can work splendidly for you!
PAPER + SPARK SPREADSHEETS
Just full disclosure here, these are my products! So obviously I’m a bit biased. I created these spreadsheets to address some of the issues with other methods that I’ve mentioned above.
- P+S spreadsheets are created by a CPA who is not just familiar with small biz taxes, but also with the handmade industry and the back end of Etsy. I started selling handmade jewelry on Etsy in 2011, and I have started two additional shops and sold at many craft shows since then. I’m intimately familiar with what makers need in a bookkeeping system and the tax issues they face.
- The system is user-friendly, even for those with spreadsheet-phobia. The instructions are made for visual learners and right-brainers. The spreadsheets include video tutorial walk-throughs and PDF instructions with screenshots.
- P+S spreadsheets can import your sales, fees, and other relevant data from Etsy, PayPal, Amazon, Shopify, Square, and SquareSpace to save you time.
- The spreadsheets are affordable with a one-time fee and no monthly subscription costs.
- The P+S system simple and straight-forward. It is made for makers and takes care of exactly what you need as a maker – sales, expenses, and (unlike most other systems!) inventory – without all the confusing bulky extras that you don’t need.
- If you forget to back up or save to the cloud, spreadsheet files (and your hard work) can be lost if your hard drive crashes.
- Spreadsheets can only handle so much. If you’re a high volume seller with thousands of transactions, then these probably aren’t a good fit for you.
- Spreadsheets don’t have the ability to handle additional bookkeeping functions like payroll, invoicing, etc. if that’s something your business needs.
- The P+S spreadsheets don’t offer as much automation potential as a software option. You can easily import in your sales (via copy/paste and some handy built-in formulas), but you manually enter in most of your expenses. This can be more time-consuming, but I believe this hands-on approach helps you “get to know” your business and your numbers better. Plus, since you’re doing the work yourself, there is much less potential for misclassifying, duplicating, or missing transactions like there is with automatic integration.
I hope this summary helps you find a bookkeeping solution that meets your specific needs. Always remember that the best bookkeeping system is one that you keep up-to-date!
No matter what system you choose, whether it’s free or cost you $500, an unused bookkeeping system is useless.
Staying on top of your finances is a sure-fire way to grow your business, make more money, and eliminate stress and overwhelm at tax time.
Take the time to set up a bookkeeping practice that works for you and make it a consistent habit!
Janet is the founder of Paper + Spark, where she offers educational content, tools & spreadsheet templates to help makers and creative entrepreneurs become more confident about the financial side of running their business. She’s a maker,mama, numbers nerd, Etsy shop owner, and an accountant.
Her passion is to help other creative women bring their entrepreneurial dreams to life by going from confused to capable when it comes to their money.