The Importance of Accounting
This year I underestimated the importance of accounting. I was typically saying to myself that sales and marketing are most important, and I left accounting go to the wayside. I ran into a major issue with this when it was time to pay commissions to our reps.
What are Commissions?
A sales commission is a percentage of the sale that we agreed to pay a rep when they write an order for us. More specifically, it is after an invoice has been paid. This is very typical in the apparel industry. We care a lot about treating people well, but I am sure the reps didn’t feel like that. We ended up paying our reps a couple of months late and I kept telling them that we are working on it…. that’s not what they wanted to hear!
So why did it take so long?
In a business like ours, there are many transactions. Each sale has an invoice, a payment, and a credit card processing fee. That means that each sale has 3 transactions. In the month of July, we shipped about 1500 orders that month. That means 4500 transactions!! When you get a few months behind and thousands upon thousands of transactions behind, it took me a very long time to catch up.
The Other Side Effects
Until I went back and started cleaning up all my transactions, I didn’t realize how many people hadn’t paid their invoice. We had made the mistake of sending out orders very quickly and getting payments later. This was a big issue and it cost me thousands of dollars that I was never able to collect. On top of that, I paid commissions on unpaid orders. In a nutshell:
- We didn’t get paid for some orders
- We paid commissions on invoices that we never got paid for
- We had no idea if we were profitable or not
- We didn’t know what our Total sales were (we didn’t enter everything from the websites)
- We weren’t keeping track of things that were costing us money, but gave very little value. (Ex. We had a subscription to a monthly software subscription that we never used)
That is a lot of bad stuff. In hindsight, sales and marketing is not the only important thing in our business….I guess some people have to learn the hard way!
What are we Doing Now?
Since then, I have decided that accounting is the most important tool in our business. We don’t have the information we need to make good decisions if accounting isn’t done properly. If we don’t make good decisions, we won’t last long. Since we are still a small business, I personally do all the accounting work myself. The way I make sure I get it done is that I wake up first thing Saturday morning and I work on accounting till I am done. All accounts reconciled, all payments accounted for, everything entered. It is the way we make sure our business is properly managed. It is still not a habit, but a choice that I am making every week!