Connect Etsy to Xero: 4 Fool-Proof Steps

So you have your Etsy store up and running. Your sales are growing and you've taken the positive step of setting up a Xero account to help manage your Etsy bookkeeping. The problem is, as your sales and the amount of accompanying financial data grow, manually recording your transactions in Xero becomes more complex. It's time-consuming, tedious, and prone to errors.

There's only so much data entry you can do in a day. And an expanding business cannot realistically continue with manual bookkeeping.

The obvious solution then is to connect the two software together; Xero and Etsy. This will create a unified bookkeeping system that syncs your financial information and helps you keep clean financial records.

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If you're not sure how to connect Etsy and Xero, stick around. I'm going to share a fool-proof 4-step process to simplify your Etsy accounting tasks.

What's Involved in Accounting For Etsy Businesses?

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First and foremost, let's take a look at the components of a solid bookkeeping system for Etsy sellers. These are the fundamentals that you need to consider, track, or account for:

• Sales tax or VAT
• Inventory management
• COGS (cost of goods sold)
• Sales volume
• Fees (Etsy fees, payment processing fee, advertising fees, etc.)
• Refunds

Keeping on top of these elements can give you an accurate view of your business finances, along with your gross and net revenue. They'll enable you to produce accurate financial projections, and also help you adhere to your tax responsibilities.

Should You Use Etsy Accounting Spreadsheets?

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Etsy accounting spreadsheets are a popular for Etsy sellers. In many cases they're free, easy to use, and can help an Etsy start-up business remain organised. The problems with this method of bookkeeping quickly become obvious though as your business expands.  

Limitations of Etsy Bookkeeping With Spreadsheets

Link My Books has worked with thousands of Etsy sellers over the years and these are the limitations we've heard about from those using spreadsheets:

Time-Consuming

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Spreadsheets may be a fine option when you launch your store. But the amount of time you have in a day is finite. Maintaining a general ledger and other financial records with spreadsheets will become a challenge. Something that's meant to be useful can quickly turn into a drain on time and resources that can be better spent elsewhere.

Prone to Errors

Spreadsheet programs like Excel and Google Sheets are not designed specifically for accounting and bookkeeping tasks. They won't correct your mistaken calculations or flag up any errors within your records. And making mistakes is very easily done when you're working with lots of data.

Consider all the fundamentals we went through above and what it would take to ensure all this information is consistently accurate. And furthermore, how you would identify mistakes in your spreadsheets.

Not Scalable

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As already alluded to, scaling your Etsy business needs an accounting solution to scale along with it. And spreadsheets just don't cut it. You'll end up with endless sheets of data which the program might not be able to handle. As a result, it can crash or become very slow. Thus, increasing the likelihood of errors within your books.

Limited Functionality

Using a spreadsheet for a general ledger and other bookkeeping records severely limits your options when it comes to functionality. You can't apply automation to it, connect your bank account, or ensure you remain tax-compliant. Keeping track of COGS and transactions quickly becomes far more complex than it needs to be.

Do You Need an Accountant For Your Etsy Store?

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There is no legal requirement to hire accountants for your Etsy store. It's worth noting though that eCommerce accounting is a different game to traditional bookkeeping. There are aspects to it that do aren't associated with traditional accounting.

For example, the potential sales volume and scalability, along with the potential for world-wide growth.

With these in mind, we would recommend seeking professional help for aspects such as tax rates, particularly if your business operates in multiple countries. There also might come a day when working with a professional eCommerce accountant might be necessary due to large amounts of data coming in from your sales.

An accountant can help you with producing financial forecasts, and analysing and interpreting your data. They'll help you manage your finances to maximise profit and minimise expenses. For these reasons, accounting software and other systems enable you to allow access to your accountants.

Today though, we're focusing on what you can do for your own business as an Etsy seller wanting to simplify their Etsy accounting process.

Integrate Etsy And Your Accounting Software For Accurate Accounting

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Xero is one of the best accounting software available today. It's affordable, feature-rich, and scalable. There are also over 1,000 third party integration options on the Xero App Store, including Link My Books.

What is Link My Books?

Link My Books is a software that sits between your Xero account and Etsy account. Once you've completed the setup process (which takes less than 15 minutes), it'll automatically transfer financial data from Etsy to Xero.

Perfect for all Etsy sellers, from newbies to power sellers, Link My Books has hundreds of 5-star reviews on the Xero App Store. Many of these praise the software's accuracy, ease-of-use, and customer support.

Link My Books Top Features

Let's take a look at some of the features that'll help Etsy sellers simplify their Etsy bookkeeping and build a successful business:

Clean Summaries

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Link My Books breaks down your business expenses and revenue to produce clean summaries or 'settlements'. Settlements include sales, Etsy charges, advertising fees, shipping, and refunds.

These settlements give you a clear picture of the financial side of your business operations by detailing your profits and losses. They can be sent across to your Xero account, either automatically or manually, and viewed through Link My Books itself.

Tax Calculations

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Our Guided Tax Wizard will ensure you're always paying the correct amount of sales tax, regardless of which country you sell in. Simply answer a few questions when you're setting up your account, and Link My Books automatically calculates your taxes on all your Etsy sales.

Link My Books breaks down your sales figures so you get a clear view of metrics like Etsy sales, Etsy fees, advertisement fees, and refunds, among others. With this information, and the information you provide when setting up your account, Link My Books accurately calculates the sales tax and VAT that you're liable to pay.  

Payout Reconciliation

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Payout reconciliation is the process of ensuring your financial records match the payouts from your Etsy channel and your bank account transactions. Link My Books syncs the data from all your sales channels for accurate payout reconciliation.

Once you've connected your Etsy shop to Link My Books, it will begin syncing data and producing financial statements from the last 90 days. You can have these sent to your accounting software automatically. Or, choose to send them over one at a time. You can also reconcile these reports with your bank statements with a few clicks.

Link My Books Benchmarking

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Link My Books Benchmarking is a first-of-its-kind feature that makes Link My Books really stand out amongst its competition. The software gives Etsy sellers valuable insights into how their Etsy Shop (and other eCommerce stores) compare with industry averages.

Link My Books Benchmarking gives a percentile ranking for your business using anonymised data and a cohort analysis of similar businesses.

Our benchmarking feature looks at the following five metrics:

• Sales growth percentage
• Refund ratio
• Fee ratio
• Advertising fee ratio
• Refund ratio growth trend

Link My Books Benchmarking tracks trends across the industry so you can make informed decisions for your Etsy shop. With this data, you'll know whether changes to your sales, fees, and refunds is a industry-wide thing. Or whether the changes are only happening to your Etsy shop. In case of the latter, understanding this will enable you to decipher the reasons behind changes and alter your efforts.

COGS Tracking

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Link My Books tracks COGS (cost of goods sold) by deeming sold inventory an expense only when it's actually been sold. You simply enter the cost of each product in your shop, and Link My Books works out which product you've sold for every payout. We then include a monetary value of sold products in your dashboard and every summary report.

Tracking COGS is essential for accurate tax calculations, along with correct revenue and expense reports. You'll know the profitability of your products and be able to establish ways to lower your COGS.

Most Etsy sellers don't count their inventory as a business asset. Instead, they record it as a cost as soon as they buy it. This will often result in a skewed figures in your financial reports. Conversely, Link My Books tracks the value of your inventory as it's sold. This means your figures consistently reflect the true profitability of your business.

Etsy Xero Integration: How to Set it up

1. Create your Link My Books account
2. Connect to Etsy and your bookkeeping account
3. Set your tax rates
4. Review details and begin sending data
5. Optional step: Set up COGS tracking

As promised, we're now going through how to set up an Etsy Xero integration. Follow this simple step-by-step process and be up and running, and ready to tackle your Etsy bookkeeping in less than 15 minutes:

Step 1: Create Your Link My Books Account

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Your first step is to create your account with Link My Books. Sign up for your 14 day free trial via the 'Free Trial' button on our website. Answer a few short questions. Then, sign up using your Xero account details.

We don't need any personal information from you at this stage because you're using Xero to log in to Link My Books. We won't ask for your email address, credit card details, or even your name. You also don't need to set a Link My Books password.

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The next page asks what your role at the business:

• Business Owner
• Accountant/Bookkeeper

If you're an Etsy business, select the first option. The other option is for accountants and bookkeepers with Etsy (or other eCommerce) clients.

Step 2: Connect to Etsy And Your Bookkeeping Account

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This step is another super-short one and will take just 2-3 minutes.

1. First of all, select Etsy as your sales channel.
2. Name your account. For simplicity, you'll probably want to name it the same name as your Etsy shop.
3. Click on 'Connect to Etsy'. You'll be taken to a page where you'll need to sign in to Etsy and 'Grant Access' to accept the connection between Link My Books an Etsy. ‍‍
4. You'll be taken to a page asking whether you want to connect Link My Books to Xero or QuickBooks. Select 'Xero'. Choose your organisation and grant access.

‍Side note: you can retract access at any time through your account.

Step 3: Set Your Tax Rates With The Guided Tax Wizard

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You'll now be asked whether you want to complete the Guided Tac Wizard yourself. Or, have a free onboarding call with our support team who will help you with the process.

If you choose to complete it yourself, the step takes around 5-7 minutes. You may want to discuss tax rates with your professional accountant if you're not completely sure of your liabilities. Here's what you need to do to set your tax rates with Link My Books:

1. Select an account for each transaction category. Categories will consist of things like Etsy sales, Etsy Refunds, Etsy Shipping, etc. On the right hand side, we provide a default set of accounts. You can accept these, in which case they'll be added to your existing chart of accounts in Xero. Or, you can alter them via the drop down menu. Click on 'Next' when you're happy with the details.
2. You must now select the countries where your business is VAT-registered. If you're not registered in the UK or Europe, you can select 'My business is not VAT registered in any country'.
3. Now, let us know if you sell any zero-rated or reduced rate products by ticking the appropriate box. This creates three different product groups; standard rate, zero rate, and reduced rate. Select the correct tax for each group. Once the Wizard is set up, your product list will be pulled in from Etsy and you'll need to let us know which products belong in what group. The correct tax rate can then be applied to each product you sell.
4. You'll now see a page with a set of default tax rates based on the answers you provided during the Guided Tax Wizard. Double check these before confirming they're correct.

Now your taxes are all set up and you can move on to the final step.

Side note: Step 3 only applies to VAT-registered companies.

Step 4: Review Details And Begin Sending Data

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Once you're into the Link My Books software, you can begin sending the data to your Xero account. This data consists of transaction details in your Etsy account that we specified earlier, such as sales, refunds, fees, etc.

Link My Books generates summary entries that you can send across to Xero either individually or by setting the software to send them automatically.

• Send individually: Navigate to your Settlements page. On the right hand side, you'll see a button labelled 'Action'. Click on the little arrow next to it to send individual settlements to Xero. If you want to send certain parts of the settlements, click on 'View' first and then select which part you want to send.
• Send automatically: Navigate to your Settlement Settings by clicking on 'Settings' at the top of the page. Then in the drop-down menu, choose 'Settlements Settings'. Click on 'Automation' and select 'Auto Post Settlements' before choosing your dates. With this feature, you can backdate settlements by choosing what date you want the settlements to be sent from. Link My Books will post settlements to Xero automatically from the date you choose.

Side note: most customers send a couple of settlements individually before turning on auto-post so they can check it's all set up correctly.

Optional Step 5: Set up COGS Tracking

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Tracking your COGS makes Etsy accounting easier. It enables you to better analyse your business expenses, and devise a profitable pricing strategy. It also makes it easier for you when tax time rolls around. You'll be confident that the cost of your goods are accounted for when it comes to your deductible expenses.

Here's how to set up COGS tracking in Link My Books:

1. Navigate to your Product Cost page. Enter the cost of each product. Do this individually. Or, bulk upload the details if you have a lot of products. The amount you set for your products depends on your current COGS record keeping system. For example, you might account for purchase price, shipping costs, and import duties. Ensure you remain consistent in your COGS calculations.
2. You can now turn COGS on by heading to the Settings tab and selecting 'Settlement Settings'. Now, click on 'Cost of Goods Sold'. Choose your Credit and debit account and select 'Turn on Cost of Goods Sold'. Now save your settings.

Side note: You can learn more about turning on COGS, and choosing your credit and debit accounts here.

You Sell (or Want to Sell) on Other Marketplaces as Well as Etsy?

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One of the great things about Link My Books is that it provides a multi-channel software experience. In other words, you can connect multiple marketplaces and platforms to the same account. And, Link My Books consolidates that information and sends it all across to your accounting software, categorising it accordingly.

What Platforms Does Link My Books Integrate With?

In addition to Etsy, Link My Books integrates with the following marketplaces and platforms:

• Amazon
• eBay
• TikTok Shop
• Shopify
• Square
• WooCommerce
• Walmart

Profit & Loss by Channel

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Link My Books multi-channel users enjoy an accounting feature called 'Profit & Loss by Channel'. This invaluable feature breaks down your revenue and expenses according to each channel you sell on. Get an overview of your entire operation, or produce transaction reports and side-by-side comparison tables.

Link My Books P & L by Channel enables eCommerce sellers to dive deep into their analytics for a complete view of their business. This helps them make sound, data-driven decisions, such as where to allocate budgets and resources, and where there's potential to boost net income.

This feature is a game-changer for Etsy sellers selling across multiple channels.

How to Add Multiple eCommerce Accounts to Link My Books

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The process for adding multiple eCommerce platforms is really easy. The setup is pretty much the same as connecting your first Etsy shop.

Click on the arrow icon at the top right of the screen to access the drop down menu. Click on 'Add new account'. Follow the steps above to set up the connection. You'll be prompted with an additional step. That is, whether to share the Xero connection (or QuickBooks) or set up a new connection.

This step is more geared towards those managing accounts from different organisations, such as accounting firms. If you're an eCommerce business with multiple eCommerce stores, you'll likely want to choose to share the existing account.

Optimize Your Etsy Seller Accounting With Link My Books

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When it comes to selling on Etsy, starting out with using spreadsheets or manually recording your transactions in Xero or QuickBooks might be fine. However, they'll quickly come a time when your manual bookkeeping tasks become too time-consuming, complex, and counter productive. Therefore, connecting Etsy to Xero is the way forward.

Link My Books facilitates a smooth and reliable Xero Etsy connection. The automation, and tax and COGS features will save you considerable time too. You'll also benefit from business-enhancing features like Benchmarking and P & L by Channel.

Put your bookkeeping on auto pilot and automatically import your financial data to your Xero software with Link My Books. Sign up for your free trial today.

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