“Accounting or Bookkeeping does not increase or decrease your profits today, instead it helps you analyse the past, understand the trend and provides you an opportunity to plan your business well ahead for the future. It helps you to be more creative to craft a better financial strength and to enhance your grip over your business for a brighter future”
In my career as a Chartered Accountant, I have seen many small business owners undermining the importance of the standard accounting or bookkeeping process to remain penny wise pound foolish.
In UAE, under the zero tax environment, greater is this reluctance among the small business owners in the maintenance of proper books of accounts. Loose policies and lack of strict financial requirements from the Banking /Credit fraternity also adds to this woe. It is high time that the banks should avoid accepting in-house audits/accounts for making credit decisions as these may not reflect the actual position and are made by unqualified persons just to match up to the requirements.
In the wake of UAE fast approaching the VAT era, it is highly important for the small business owners in the middle east to realize the importance of quality accounting practices that adhere to the International Financial Reporting Standards.
But the prime reason to adopt and adapt to these standard accounting practices is to systematically and scientifically analyse, understand and boost the financial health of your business- Your Bread Winner. Nobody needs them more badly than you, to see the actual performance of your company – to compare with your competition and to benchmark with the industry standards for immediate remedial measures.
It is also seen that unless a regulatory requirement arises or is mandated by a creditor, the companies ignore the Annual Audit and systematic recording of financial data. When one does the servicing of your car at least annually or at even lesser frequencies, an annual health check-up or an analysis of your companies’ financial health becomes even more vital for the sustenance of your business.
At times it is also seen that the financial statements are created for many years together as requested by creditors/banks. One should reflect within, the relevance of doing this as a mere ritual.
Another common issue mostly seen is the mixing up of business expenses with that of the personal accounts of the owner to confuse himself and others at a later stage. After all, the human brain cannot store all the details for longer periods unless recorded appropriately. It is very important to have a separate business account to conduct your business. Using personal accounts for business purposes is strictly not encouraged by banks and authorities.
Proper bookkeeping or accounting is critical in avoiding defaults and increasing the credibility of your business. Without that, you run the risk of financial bumpy rides, liquidity crunches due to poor forecast of cash flows, reduced or zero credits, missed opportunities and more sleepless nights.
I have seen and heard many business owners fighting, pleading and requesting the bankers to hold the cheques and not to return them and some end up in legal proceedings as it is a crime in UAE. A proper forecast of your inflows and outflows with daily verification can easily get you out of this trouble.
Timely recording of invoices, regular verification of banking transactions again can give you more peace of mind and avoid any unnecessary banking charges. Delayed checking of these details generally creates confusion on the payments received and transferred and later leads to collecting this information from banks to attract additional charges.
When you devise your accounting or bookkeeping strategy, always remember that the purpose of bookkeeping is to help you efficiently manage your business finance and to enable all stake holders like Partners, Customers, Creditors, Banks, other Investors, Tax authorities or Governments to evaluate and understand your business activity and to derive a comfort or to gain confidence in dealing with you or to decide for further investments or to access the tax to be paid by you. Your Accounting/Bookkeeping activities should achieve these objectives with ease and transparency.
Lack of proper understanding or clarity on many of the accounting concepts like “Business entity concept, Accounting period concept, Cost concept, Realization concept, Dual concept etc and even the logic behind deducting depreciation on fixed assets is widely misunderstood. It is always advisable to spend time with a qualified accountant and understand these basics to set it all right in your mind once and for all.
“Doing it all myself attitude” among small business owners have often seen to be eating away lot of their quality time and energy. Hence than creating more road blocks in your journey to success, regular accounting practices can save you precious time and money and more importantly helps you to invest it into expanding your business designing better strategies, products and services.
My piece of advice will always be to hire a qualified accountant or if you wish to reduce cost and ensure more accuracy, outsource your accounting works to a professional Audit/Accounting firm for periodic checks and guidance and focus on doing what you are best at – your business.