| Accounting is a factor of online businesses, | | | | The customer had been requested payment after |
| especially small businesses, that is largely ignored | | | | being two months overdue but was not put on |
| until the necessity arises, and by then it can be a | | | | stop because no information was passed on to |
| little late to make up lost ground. Whether you | | | | production or dispatch areas, even though the |
| run an online small business or a multinational | | | | business only employed just under 30 people. By |
| corporation, a good knowledge of basic accounting | | | | the time the so-called finance department put a |
| is essential to you. | | | | stop on the account it was too late. |
| If you fail to maintain adequate records of your | | | | This is an example of bad accounting and a lack |
| financial affairs, and make important business | | | | of actions at critical points. With a good |
| decisions on inadequate financial information, your | | | | accountancy system, the slowdown in payments |
| business could well fail before it even gets off the | | | | would have been logged and the situation |
| ground. It doesn't matter how good you are at | | | | monitored. The whole sorry tale could have been |
| what you do, or if you have a fantastic product | | | | avoided if the correct information had been |
| that the market wants, poor online business | | | | passed to those who should have known of the |
| accounting practices could leave you destitute | | | | situation, particularly the owner who had no idea |
| with no business to run. | | | | what was happening. |
| Your financial records can be used to provide you | | | | So what should you do to avoid this happening? |
| with advance warning of things not going as they | | | | Good online business accounting practices are |
| should, and enable you to take remedial action | | | | easy to put in place and maintain. Many small |
| before going under. This is difficult for many | | | | businesses cannot afford a full time accountant, |
| entrepreneurs to understand, especially if they | | | | but still apply good accounting practices. An |
| have a good product and what they consider to | | | | example of this is the 'double entry' system, |
| be a good business model. Financial statistics can | | | | whereby you record each transaction twice. What |
| show what might seem like insignificant trends, | | | | you do is have two accounts, and for every |
| but that could be a forewarning of things going | | | | entry enter it as a debit in one and a credit in the |
| wrong. | | | | other. The sum of the two accounts as should |
| There was a company once that offered 30 day | | | | always cancel each other out. If they don't then |
| terms, but their major customer was happy to | | | | you should look for the error. That will be a good |
| pay fairly quickly in return for a small discount. | | | | start. |
| This is common business practice. After about a | | | | Then you should always carry out analysis for |
| year the major customer went into receivership | | | | each customer, and record the difference in time |
| owing the company a substantial sum of money, | | | | between invoicing and receiving payment. Once |
| and since the receiver was unable to pay anything | | | | that time difference reaches a pre-determined |
| but a very small proportion of what was owed to | | | | warning level, then you must contact the |
| each creditor, the company was forced to | | | | customer. You should also have a stop level at |
| borrow money to remain solvent, and eventually | | | | which you stop supplying until payment is made. |
| went out of business about a year later. It was | | | | That is good accounting practice, and that way |
| unable to recover from its major customer going | | | | you won't allow a customer to become |
| into receivership. | | | | dangerously over credited - that applies |
| There were two reasons for this of course, one | | | | irrespective of the size of the customer. |
| being the loss of business from their major | | | | These are two simple ways for a small business |
| customer. However the main reason was the lost | | | | to keep track of accounting errors and bad |
| payments that their customer could not pay. | | | | payment records of customers. Simple but |
| They had to borrow to pay their own suppliers, | | | | essential, and they could be critical if you fail to |
| and that was the beginning of the end. | | | | stick to them. The company in my example (a |
| Subsequent analysis indicated that the customer | | | | real company incidentally) could still be going |
| had defaulted fairly early on in the agreement to | | | | strong today had they applied the second of |
| make quick invoice payments, and over time their | | | | these two practices. |
| payments had lengthened and lengthened. | | | | Even if you are too small for an accounting |
| Eventually they owed over four months invoices | | | | department, at least apply some simple basic |
| which amounted to a considerable proportion of | | | | accountancy principles, sufficient for you to keep |
| the small business income. It transpired that the | | | | track of your income and outgoings and whether |
| accounting was basic to say the least, and none | | | | or not your customers are paying their invoices. |
| of this had been noticed until too late in the | | | | That way you could save your company a lot of |
| process. | | | | grief. |