You got your license! Now you're starting to kickoff your business. Congratulations! It takes a lot of patience, hardwork and perseverance to be in the position you're at now. We know and we're not a stranger to the growing list of to-do tasks of a start-up businesses, we've been through that.
Now, I know you come through our blog, probably looking for an answer or tips on how to start the accounting side of your business. That's great! As a start-up company offering accounting software, we thought having it would discount us from the pain of the accounting process, but we're wrong. The past few months have taught us the biggest lesson in business. The success of it relies on your effort to do everything right! Right at very first time. So to avoid our mistakes, here are some 9 tips for you to start your Accounting process right at the first time.
Some practices to use the owners personal bank account for doing business, there is nothing wrong with it but since UAE government introduced VAT it is highly advisable for owners to open a separate account for business to make it easier for filling return or reclaim for tax and to avoid comingling personal and business income.
There are numerous financial institutions that can offer you full range of services you can expect from an international financial institution in 2018. Even though setting up a business bank account is a straightforward task, you need to exercise a little preparation since these financial institutions depending on your business size or activity would require you documents to prove your legal business entity.
We would like to share with you, some of the standard documents ask by banks, and few tips based on our experience.
After preparing these pertinent documents, you can know go to the bank of your choice that you think is suitable for your business. Be prepared, depending on the bank you choose they would require you to deposit a minimum balance ranging from 5,000-1 Million Dirhams
Value Added Tax (VAT) was introduced in the UAE on 1 January 2018. In order for you to charge your clients with taxable goods you offer, and file reclaim for the amount you paid for your suppliers you have to register for VAT .
If you are a business with a minimum threshold or turnover of AED 375,000 or you expect that in the next 30 days of your business you will reach the set minimum threshold then you should register for VAT. For businesses that wish to do voluntary registration you should have at least 185,000 turnover or expenses or you expect your business to reach it in the next 30 days.
To know more about VAT in UAE and the implication of it in your current or future business visit this link:
The good thing about this, is that the application can be done online you don’t need to line up for long queue. You just have to prepare documents that would prove your eligibility to register.
You can go to the website of The FTA https://eservices.tax.gov.ae/en-us/login?returnurl=%2fen-us%2fuser%2f dashboard to create an account and start your registration. Verification process sometimes took 20 days. You need to email them from to time just incase you haven't heard from them for more than 20 days.
It is a Concept that we should always separately record the transactions of a business and its owners. Otherwise, there is a considerable risk that the transactions of the two will become intermingled.
If you are an owner, and you take part on the day to-day operation for example as a manager, It is highly advisable to give yourself a salary they say its counter productive if you deprived yourself a salary. Get a fair pay for your fair work.
It is really important to get track where do you spend your money. It is the first step to check how well you manage your finances. Up to the fils you spent from getting your license through the amount you spent for buying a sticky pad you should always keep your receipts on your file.
Especially for B2B businesses, remember that you cannot collect the return from government the amount of money you paid to your suppliers when you cannot show a receipt of your purchase.
Start establishing a filling system for all receipts. This process is very basic and old school that you can use traditional method of buying a ring binder and puncher! Make keeping receipts a good habit for your business
Some people use bookkeeping and accounting interchangeably. Before we go through hand in hand about bookkeeping, let start differentiating it from accounting.
Bookkeeping according to article published by Accounting coach, is the activity that involves the recording of a company's financial transactions.
1. Cash Method- Sales will be recognized when cash is received from a customer and Expense is recognized when payments are made to Suppliers.
2. Accrual Method – it is the concept of recording revenues when earned and expenses as incurred. Example, a company who is using an accrual method will record a Sale as soon as it issues an invoice to a client or Record an Expense as soon as you receive an Invoice from Suppliers. This method requires tracking a receivables and payables.
Bookkeeping does the Journalizing, first step in Accounting process. Accounting is the process of recording, interpreting, classifying, analyzing,reporting and summarizing financial data.
Accountants prepare the financial data and use it to make Financial Statements like Profit and Loss Statement, Cash flow Statement, Balance Sheet.
For Small businesses you can start your bookkeeping in an excel file. You can also hire a part time bookkeeper to do it for you make sure they have accounting knowledge then eventually hire an in house accountant who can oversee and do the overall accounting process and reports preparation.
Tip: You have to establish and create a Simple and functional chart of accounts, these are the list of accounts that you use for daily transaction. Easy to understand and easy to organize. Example: Expense-Telecommunications is an account which include all expenses paid for Internet, Postpaid Plans or Landline Service
Payroll system differs from type of businesses you’re engaged in, but the things you need to establish is the same. You need to categorize full-time employees From part time employees, Contractor to freelancers. Monitor the hours they spend for the job and the wages that corresponds to it.
Doing business in UAE is a bit different from other country, since most of the employees are EXPATS, there are some cost involve like VISA Cost, Insurance . Your HR System should have the capability of tracking, which employee’s visa is expiring and which employee’s Insurance policy should be renewed. Failure in monitoring it could lead your company in trouble like labor disputes.
Before your start rolling, you need to determine how are you going to accept payment from clients. If you’re going to accept credit card or debit card, you need to go to your bank to get the available Merchant Payment Solution. Note that banks will require you certain documents to check your overall credit standing. If you credit is in question there’s still a possibility that they would allow you to open a merchant account but they would for sure, require you to pay a high amount of reserve which protects the processor from any future losses. In your application, you would also specify minimum amount of monthly transaction, if just in case you don’t hit it they would charge you monthly minimum fees that depends on the bank your choice.
You can also go for the third party processor like Paypal they would normally charge you 2.9% for each transaction.
For businesses involves in trading, Inventories are high valuable assets that are convertible to cash. You need to take into account how many products you have on hand. You should know how much is your beginning inventory and the corresponding purchase price or cost of manufacturing for each products and how much is the mark up value.
Determine the Maximum order level of each product that you carry to avoid wastage and Minimum re-order level to avoid shortage.
Even if you are a business that has Inventory Management Software make it as a practice to do stock takes or stock count to determine those products that are sometimes defective or spoiled and to bash it with the Inventory report generated in the software.
If you’re a start up company, and you see that manually recording and tracking your money and transaction will consume most of your time, and if you’re a on-the-go business owner try to consider the benefit an accounting software could offer you.Remember you established your business to generate money not to spend your time tracking your money.
Having a clear set payment records and invoices is the key to measure and keep track of your business financial health and accounting software could make the process less painful for you.
We know that the task that needs to be done in establishing a business is overwheling and exhausting, but as what they say, if doing business is not hard then everybody now have business. So plant the seeds of hardwork now, reap what you sow later. Our simple tip, do your Accounting RIGHT, RIGHT AT THE FIRST TIME to avoid or minimize the Accounting challenges you will encounter in the future.