Accounting For You
|Posted on 10 February, 2014 at 20:05|
With the handmade revolution growing all the time more and more people are making products to sell. With the wealth of talent out there handmade products are growing in popularity, anything from jewellery to art, cards to clothes, and candles to candies. While many people make their products just for themselves or as gifts for their friends and families, a growing number of hand makers are now selling their products. With the growth of such online market places as Etsy and Felt and the increasing number of physical designer and hand craft markets the opportunity to sell is increasing.
However, once someone starts selling their products on a regular basis, be it online, at a market, or even via a shop or gallery, they are no longer enjoying a hobby, they are conducting a business and this needs to be properly accounted for.
As someone who makes and sells jewellery under the name of Shazzabeth Creations this is something I have had to deal with. Fortunately of course I have the advantage of also being an accountant and so this hasn’t been a problem for me.
When accounting for a handmade business it is easy to overlook some of the costs that can be claimed against sales. While some may be obvious, others may be less so. There are two categories of costs, direct and indirect.
The most obvious direct costs are material costs, the raw materials that you actually use to make your products. For most people selling hand made products this may well be the only specific direct cost that there is. However, you need to ensure that you are accounting for the whole material cost, and that not only includes the actual cost of the material but could also include:
All of these add together to create the TOTAL material cost.
If your order contains several different items then the easiest way to handle this is to pro-rata the additional costs (freight etc.) against the items in your order in order to then give you a total cost for each individual item.
The other potential direct cost that hand makers could have is salaries. This would be if the business has grown enough that you are now paying one or more people to help you make your products.
Some of the indirect costs could be fairly obvious. There are some which more directly relate to the handmade business as a whole and it would generally be easy to recognise these. These would include:
There are however some other costs that may more easily be overlooked and which can quite legitimately be applied against the handmade business. These include (but are not necessarily limited to):
Assets– Tools and Display Equipment/Materials
The one area that you have to be careful with is the cost of tools and display materials. Whether these are tables or display racks for market stalls, or sewing machines, pliers etc. used for making your products, if the useful life for these items is expected to be more than one year then the items have to be capitalised and depreciated. You can’t claim back the total cost of these items in the year of purchase.
Of course the easiest way to ensure that you are accounting for your handmade business properly is to employ an accountant, specifically if possible an accountant who understands handmade businesses.
Categories: home business