7 Accounting Mistakes SME & Start-up to avoid in UAE

When you started your own business you began with passion and determination in your mind. As an entrepreneur, you may have more important things to do than accounting. However, accounting remains an integral part of your business. Investing in your company’s accounting needs should be considered critical. A messy book of accounts or accounting with unreliable sources could prove to be more problematic in the future. It could cause hindrance in the growth of your business and its prospects.

Below are 5 mistakes that Small Businesses and Start-ups should avoid in their books of accounts:

Avoid the cheapest available resource

Accounting skills are not something you can pick up on a sale from the supermarket. At the same time, you can always find affordable options but be mindful of what you get. Many businesses have receptionists, spouses, sales person etc doing their accounts or hiring an accountant who charges less salary as his/her accounting skills are very minimal. This could lead to many financial dents in future. Try to see an optimum wage for an accountant in the market and find a decently experienced accountant depending on your business scale. If hiring is an expensive or not possible option then try outsourcing it to an accounting firm.

Owners should avoid writing their accounts

Owner, you have more important things to do than writing your accounts. If an owner decides to write his/her accounts most of the time it’s not done at all or done partially. From a cost point of view also it’s very inefficient. If an owner spends his precious time developing his/her business, it’s much more valuable than writing accounts that could be done or outsourced at a much cheaper price.

Try not to mix business money with personal money

This is easier said than done. It is a very convenient thing for an entrepreneur to mix business and personal money. In the early stage of business cash flows from the owner’s account to the business account and later stage of business, it is the other way around. All entrepreneurs know that they should have a company bank account and all business-related transactions should be done from that, but how many follow it? Well if you have a good accountant then he/she will make sure you follow this basic rule.

Use appropriate software for doing accounting

At different stages of your business, you need different tools to run your business efficiently. Accounting software is one of them. A giant retail company could be using an industry-specific ERP & accounting software but the same software could be of no use to a multi-chain restaurant. As an entrepreneur, you need to identify your needs and pick appropriate software. Xero, Quickbooks, Zoho Books, Tally, and Sage are a few of the popular options used for accounting for Start-ups and SMEs. Many early-stage entrepreneurs use Microsoft Excel to keep their accounting/financial records. It is a great tool and used by many accountants worldwide but not for accounting certainly. It doesn’t have a double entry system which is basic and bare minimum for an accounting system. Also, there are chances that the file may get corrupted or a few rows may get deleted by mistake. This will change your accounts and you will not get a correct picture of your business.

Remember to record your petty cash expenses

Small expenses done for the company are simply ignored by owners. They spend from their pocket/credit card and forget to record it. These expenses may seem small to worry about but if you see your yearly petty cash expenses it would be a decent amount that you as the owner should be aware of. Also, these expenses could be part of your tax returns which you may miss out on claiming if you have not entered in accounts. So this is a loss of money.

Follow-up on receivable and payable diligently

Once your business kicks off you will always have clients that have not paid you yet and suppliers that you are yet to pay. Get clear terms and maximum possible credit days from your suppliers. This will help you in knowing when you would need to keep your cash balance available to pay your supplier. Similarly have clear terms with your customer. Your customer should have a correct understanding of when your invoice is due. Keep practice of following up with your customer for payment before the due date arrives. This way you will receive payment on time.

Have basic knowledge of Tax applicable to your business

Every country has different tax laws. Also, tax law for different types of businesses varies considerably. In UAE businesses need to register for Value Added Tax, Corporate Tax, Excise Duty etc. You should be aware of which laws apply to your business. What are the thresholds for it? and what is the process to follow? Keep the knowledge of tax on a basic level. This will help you to plan further steps and avoid any penalty from the tax authority.

The benefits reaped from correctly done accounting are a clear view of your cash flow, profitability and overall business judgment. It is an effort to keep your accounts in order but in the long term it is very useful to determine the overall performance of your business.

About the Author

This article was created for the Homepreneurs Club by our member Divya Bhagtani, Partner- Accountant's BOX. Accountant’s Box provides Cloud Accounting, Value Added Tax (VAT), Corporate Tax Consulting and Related Support Services to small and medium-sized business firms in Dubai.

Contact Divya Bhagtani Here for all your accounting needs.