With the UAE being a zero business tax environment there is a temptation for companies, especially SME’s, to avoid keeping detailed accounting information. With effect from the 30th June 2016 all “onshore” UAE companies will have to keep accounting records on-site but there will still be companies operating under free zone licences where accounts preparation will not be compulsory.
Should owners of free zone companies continue to ignore the preparation of accounting information or is now a good time to adopt the financial disciplines of their onshore counterparts?
Here are a few reasons why it’s so important
Helps business owners and managers make better decisions
You know your business model but reliable information and decision making can only be based on the records kept. Do you understand your fixed costs, profit margins or break-even sales point?
If you don’t have good records, it’s much harder to make good decisions but easier to make bad decisions that could cost the company money.
Helps to stay organised when dealing with customers and suppliers
Producing sales invoices, quotations and estimates promptly and accurately is vital.
An early estimate can be the difference between winning and losing a job. Accurate and timely invoicing also improves cash flow. Suppliers will issue statements of account but these should be reconciled against records held to ensure they are accurate and reflect the actual debt profile. It is very easy to make duplicate payments to suppliers but not so easy to obtain refunds.
Preparation of management accounting information becomes easier
Do you know whether your business is making a profit?
Preparing monthly management accounts ensures you know how your business is performing. Management accounts allow comparisons against predetermined budgets and with previous periods and financial years.
Your records are easier to access
If a customer disputes your sales invoice how easily can you access the primary documentation, estimate, client purchase order, sales order and invoice?
Keeping well ordered accounting records ensures you can deal with customer queries in a timely manner.
Helps you obtain bank finance and loans
A prerequisite for banks will be accounting information and ideally audited financial statements. Temporary overdraft facilities will not be approved without financial records and cash flow forecasts to scrutinise.
Helps to reduce accountancy fees
Using an outsourced accounting solution either monthly or annually will save you money, however, if your records are not in order their fees will increase.
VAT is coming
VAT (value added tax) will be introduced into the UAE in 2017/2018 and compliance with reporting and collection requirements will require the keeping of accurate accounting information.
Makes it easier to sell your business
Any potential buyer(s) will want to perform a due diligence of your accounting records to assess the valuation you have placed upon your business. Keeping detailed accounting information will also allow business owners to execute their exit strategy at the optimum time.
Keeping detailed accounting records is not just a ticking the box activity it is essential to support the successful stewardship of a business and to empower the strategic decision making process.
With the introduction of VAT, and the potential for corporate taxes at some point in the future across the UAE, future proofing your business starts with the adoption of accounting.