Poor financial management is one key contributor to why more than 50 percent of small businesses fail in the first five years of existence, according to the Small Business Administration.
Because ecommerce has such low barriers to entry — a few bucks for a hosted shopping cart and a few products are all one needs — entrepreneur-minded people frequently leap to launch a web-based businesses with little thought given to the financial backbone needed to operate a business.
Merchants often think they are going to be “free and independent” when self-employed, said John Day, owner of Real Life Accounting. “They may figure, ‘Since I have the knowledge and skill, I might as well set up my own business and keep all the profits.’ What they don’t realize is that if not planned out properly, their dream can turn into their worst nightmare.”
Though marketing, inventory management and sales are all important factors to online success, if a merchant doesn’t sufficiently manage his/her cash assets and fully account for sales and expenses, trouble is likely on the horizon.
Most local community colleges offer courses in basic bookkeeping or accounting. However, if you don’t have time to attend a structured bookkeeping course at an educational institution, there are online opportunities available to ecommerce merchants.
Day offers a collection of resources a merchant can use 24/7. His course is specifically built for “non-accountants” and requires no textbook or instructor. According to Day, as long as a merchant already has the skills to add, subtract, multiply and divide, he/she is ready to walk through his self-paced, six-phase course.
Day’s course begins with the basics of establishing a business organization and moves through basic accounting principles and rules; outlines the basics of assets, liabilities and equity; includes instructions on various accounting “models;” teaches merchants to set up their chart of accounts; record journal entries; and prepare financial statements.
“What I am teaching is double-entry accounting,” Day said. “When you think of an event, a financial event that occurs in a business, like selling a good or depositing cash or any of those kinds of things that occur in a business, merchants should be able to think out and translate that financial event into an accounting transaction and use it in a general journal entry. The goal is to get them familiar with how the whole accounting cycle works.”
Day’s online course costs $99. At his website, however, there are various free resources a merchant can use. He offers a free ebook entitled “Dream or Nightmare: Four must-dos before starting a small business.” He also features a blog where he answers accounting questions, and he offers a free newsletter.
At Dwmbeancounter.com, Dave Marshall offers a collection of six free tutorials that cover establishing a chart of accounts, special journals, cash management, payroll and inventory management. Marshall’s courses also target “non-accountants,” and builds in quizzes throughout the tutorials to ensure the person taking the course is fully grasping each concept.
If merchants feel more comfortable working offline, a CD of the course is available for purchase.
Marshall encourages ecommerce business owners to complete the free course if, for no other reason, to have a better idea of what an employed bookkeeper should be doing.
“I have been in outfits in the older days where you hire this bookkeeper and owners just assume the bookkeeper knows everything,” Marshall said. “So, [the course] gives owners a good idea of what that bookkeeper should be doing for them.”
Other resources at Marshall’s site include a collection of resources for small businesses and sole proprietorships, a collection of resources for improving Microsoft Word and Excel skills, and a “Newbie Center” that provides general resources to help run an online endeavor.
Both Marshall and Day warn businesses owners to keep in mind that learning accounting software, such as QuickBooks, Peachtree or KeepMore.net, is different than learning accounting. Though accounting software does “process” many of the accounting functions for a merchant, the software still needs quality data entered from a “thinking” human being.
“Accounting software does not know how to write journal entries,” Day said. “It cannot think. In every business there are always oddball transactions, such as correcting mistakes, selling assets, recording loans, etc., that require a thought process. At this time, an accounting software package does not have the capability to anticipate nuances and intent by itself. People who buy accounting software thinking no knowledge of accounting is necessary are in for a rude awakening. At minimum, a basic understanding of how debits and credits work is essential.”