(This is a re-post that was previously posted in the Diplo Community blog dated August 7, 2008.)
I recently concluded a two-day seminar-workshop on Accounting basics for non-accountants in my city. This was organized by the Philippine Department of Trade and Industry in cooperation with a local association of food producers in my province. With more than 30 participants, mostly entrepreneurs in the food business and some NGOs, the two-day workshop on accounting basics, book-keeping, pricing methods and a bit of taxation, was very interesting. The variety of participants were engaged in medium-sized businesses, basically in manufacturing but with little knowledge on analyzing their financial statements, income statements, recording their inventories or even with appropriate pricing methods that are now subject to E-VAT (Extended Value Added Tax). All throughout the workshop, participants were engaged in actual balancing of assets and liabilities. Discussion and questions centered on how to lower cost in production for SMEs. The manufacturing business complain of labor costs and how to heavily distribute their products without availing the high cost of advertising. This is understandable since the capital used for these enterprises are geared towards production costs but with little budget for marketing. Competition is very stiff with big manufacturers who have the lead in the market.
But where do these local entrepreneurs get their share of the market? They display their products in big supermarkets and “souvenir” shops. These big local supermarkets do not exactly order their products in COD (cash on delivery), rather, these items are ordered on a consignment basis. Consigned items are paid after several weeks even if the goods were already bought within the week. Then local entrepreneurs deliver again. They wait for their cheque. I learned that this is a strategy for big markets to keep the money rolling and to use the sales from the consigned goods for other business transactions. Hence, local entrepreneurs are at the mercy of big enterprises. Why do they stick to this arrangement? They need these big supermarkets as outlets to sell their goods.
Now, why do these local entrepreneurs want to know about accounting? It’s because entrepreneurs want to fully understand why there is a need to have an objective evidence to analyze accounting records and reports to assess financial gains or loses in their business. Sometimes, some entrepreneurs have this idea that as long as they have enough capital outlay and skills to produce their product, they can venture into a business without any knowledge about inventory and record-keeping. They think as long as they receive money, it’s a sign of success. The accounting part is only realized when they are already losing money. The whole process of providing information in accounting starts with the identification of business stakeholders. Once the different stakeholders are identified, the stakeholder’s informational needs are analyzed. Then this is when there is a need to design an accounting information system in order to meet the needs of the stakeholders. Thus, all economic data about the business events and activities are recorded. Once everything is in order, the accounting reports are prepared for stakeholders.
The whole concept of providing information in accounting represents relevant business transactions. SMEs can truly benefit from this skill since it can help them analyze their assets, their liabilities and their rights as owners (or called owner’s equity). They can now devise their own system to suit their own purpose and can help them further their success with objectivity. They can also analyze trends based on their financial statements to predict return of sales, gross profit, cost and expense through a ratio formula that will allow them to analyze if they will earn profit for the succeeding years - favorable trends, so to speak. What I realized in the end, and after talking to several entrepreneurs in the room, is that they are wary of going into an e-commerce venture. There is a solid lack of knowledge in e-commerce and this gives them the fear to venture into something which they are aware can minimize their costs. They fear the competition in the real world without realizing the benefits of even just having an informational website for their products. They post their email addresses in their product label but no one, they say, seems to ask them about their products. I explained that by putting a website address in their label can allow people to even just view their products and read about the nutrition facts of their products. They can start this way. Next, they can even sell their products nationwide and can just limit delivery within certain regions of the country. There is more to be done to motivate local entrepreneurs in my province to try venturing in e-commerce. Our government promotes local entrepreneurship since more businesses in the region mean more jobs for the local people. Maybe promoting e-commerce will hinder this goal to provide more local jobs?
These local entrepreneurs are ready to venture in e-commerce in terms of having the resources to do so. The only problem is to take out that fear about doing business online. But it is truly rewarding to note that more local people are interested in entrepreneurship as our government has been very strict in the adherence of local policies and at the same time government agencies have been giving free skills training. Local people are now aware of setting their goals for success. As one speaker in the workshop said, it is not enough that you simply say you want to buy something. So if you buy something, for instance, “I want to buy a delivery van in 6 months,” you should say “I want to buy a delivery van worth 200,000 pesos in 6 months.” This way this plan becomes concrete and can be integrated in your accounting system as an expense. Without a specified number, it doesn’t become part of your financial statement. So this will set a goal to achieve.
I think venturing into e-commerce for our local entrepreneurs can be another outlet for them to showcase their local produce and gain another market outside their area. This will also “un-monopolize” the way big supermarkets can take the rein in setting the arrangement of “consignment” basis for local products because they are in a position to assert their position in their selling ability - having a wide share of the market. There are always alternative solutions for marketing problems. I only hope this realization can take effect soon in the long run.