It is believed by many a professionals in Financial and Management Accounting that websites and online marketing standards are among the most complex and uncertain areas when applying accounting standards.
The Hey Days
Back in the mid 1990’s websites were measured at enormous values, listed on the stock exchange as “tech” stocks in the blue chip category. Back then a website could be listed one day then in three months has its “market value” multiply a hundred-fold. Millionaires were made on the fly, and any geek who knows how to code in html and has a short and snazzy sounding domain name could be transformed into an instant overnight success, but then something happened, the new “million dollar making phenomenon” was turned upside down as many internet marketing “mini empires” were burned out of cyberspace. All this was put down to one main “root cause” : Poor Accounting Standards, where the inability to determine whether a website that only has one or two servers as physical assets could justify a market value of $250 million ( low estimate ). It was difficult for even the “Alan Greenbergs” of the day to tell whether a website was viable as a going concern for the foreseeable !
future – for the next 12 months that is, hence the dot.com bomb exploded leaving venture capitalist, business angels, Wall Street Financiers feeling bitter and confused. The end result : “FIRE THE ACCOUNTANT” !!
Online Marketing Revenues Are Up
Reports on the performance of online marketing for the year 2003 indicated that the dot.com era is now a sediment resting at the bottom of the Internet Marketing “ocean” as revenues generated from online marketing was estimated at a record breaking $95 billion.
Marketing online once more seems a vibrant option and even the most pessimistic among us are championing the cause for profit again in the online game.
But will we make the same mistake again as before ? Will we overvalue our websites – again ! at enormous stock prices ? what accounting standards are being put in place to preserve the prosperity of the online business ?
Accounting For Your Profit
For one to determine his or her true return on investment (R.O.I) one should be able able to determine the capital employed in one’s business. Profit margin should be assessed against total asset value rather than just sales alone, this is how you measure the growth potential of a business. Working capital or current assets should be properly managed by the website owner/manager. Careful analysis should be given towards the nature of your stock ( if any ), debtors, cash at bank and your creditors. Treatment in the books of accruals and prepayments by website owners/managers has always been the bone of contention for the Accountant. For example : Joe Blogger does his books to account for profit between January – December, however in October he paid on his first lease agreement $18000 for the next 6 months ( October – September ) and received earlier in August annual payments from subscribers $24000; His profit relative to these two transaction is, you guessed it, $5500 and! not $6000 for income and expenses. A lot of you out there take the entire $24000 and $18000 in account for profit.
Applicable Accounting Standards
A pre-defined list of the relevant accounting standards that need to be explained to you by your Accountant are as follows :
The above listings were not copied from the Bible and are in no way of any religious faith but nonetheless, should be given careful thought and consideration.
A Careful Recommendation
All commercial entities whether existing as a tradition business structure or in cyberspace operate for one reason and one reason only i.e, to make a profit from investing in whatever business undertaking you may deem a likely risk. Everybody goes into business be it offline or online to make more money than the amount we risked in the first place.
Rationality and prudency should be applied evenly throughout. Risks should be evaluated frequently and thoroughly and where unavoidable, actions should be taken to minimize the adversity as much as possible. Afterall, which one of us would want to see ourselves bearing the crunch and shockwave of another dot bomb explosion ?
Ensure that you as a website manager/owner are applying techniques that are effective, efficient and economical – not necessarily cheap but cost effective. Careful planning, good internal control and proper working capital application will systematically diffuse the “bomb”.
Royan Shaw has only a year to complete his M.Sc in Finance and Accounting.
The Co-founder and developer od the Sygnetipro initiative and publisher of
the internet marketing development and financial planning Wemarketing
Financial.
