Accounting for startups is one of the vital business functions that need equal attention to your business. Without a robust accounting framework, any business can potentially fail.
Entrepreneurs who are new to starting a business in the UAE often overlook the importance of accounting. They assume that they can manage their cash inflows and outflows on their own. While this can work for some with an accounting background, not everyone is capable of understanding numbers.
Most companies that surpassed the critical startup phase have one thing in common––a sound accounting management system. Here’s why accounting for startups is an integral part:
1. It provides an in-depth look of your business performance
The most accurate way to evaluate your business performance is through your financial records. Numbers don’t lie, and through a reliable financial system, these numbers will serve as indicators of your current positioning and growth opportunities. In this case, not only do you need an accounting tool that works for your business but also the skill to analyse the data provided to you.
2. It helps you plan for recurring and unforeseen expenses
Recurring expenses are your monthly or even weekly financial obligations such as rent, insurance, utility bills, office supplies, travel expenses, and so on. Accounting gives you a clear picture of these common expenses and helps you in your financial planning by allocating the right budget for each. Additionally, unforeseen costs may arise at any time. Allocating funds to cover these unexpected losses is a sign of your emergency preparedness.
3. It ensures regulatory compliance
In the UAE, failure to keep and maintain financial records of your company can put you and your business at risk. The only way to safeguard your business from legal implications and ensure business compliance is through proper accounting and accurate bookkeeping. Here are some violations related to financial records as specified in the UAE Tax law that you should be aware of:
- Failure to keep the required records specified by the tax procedures law and the tax law. A penalty of AED 10,000 is imposed for the first time and AED 50,000 for each repeat violation.
- Failure to submit the required records in Arabic when requested by the Authority will charge you a penalty of AED 20,000.
- Failure to inform the Authority of an amendment to tax records that need to be submitted. A penalty of AED 5,000 is imposed for the first time and AED 15,000 in case of repetition.
4. It generates future projections
Determining your business profitability is only possible through your detailed financial historical data. By having the right information at your disposable, you are able to forecast what the future holds for your business. In the same way, you can identify where to cut costs and identify areas to improve.
5. Helps in making smart decisions
Accounting plays a significant role in decision-making, where figures are translated into facts. As a startup owner, it is your responsibility to make strategic choices based on facts. It can only be derived from accurate accounting reports.
Ultimately, the key to successful entrepreneurship is making sure that you allot equal attention to every aspect of the business. Never leave anything out of your focus. With proper accounting set out at the beginning, your startup gains a strong financial ground, which in turn, leads to a profitable business.