Overview of accounting for startups:
While living in the world of your newly established business or startup and striving for success with all your skills and creativity, book-keeping and accounting seems to be burdensome. However, if you plan it wisely from the very beginning it will not seem to be a hurdle but a helping hand to understand your own business’s functioning. Firstly understand the difference between two terms Accounting and Book-keeping. Book-keeping relates to keeping track of income and expenses records as well as accounting is a wider term covering the process of interpreting your financial records. Although, both of them are necessary to maintain for better business growth.
Critical business insight for investor
Both Accounting and Bookkeeping playing vital role in every business’s success, but as a startup / new business, you may have an additional need to keep clean and proper records. Being a business owner, it will always require to review financials reports as well as important for any fund raising as all financing channels required the transparent, well maintained, clean accounts and financials report so that potentials investors can make an informed decision about investing in your startup.
Importance of accounting
- Track of expenses:- When a new business is in the process of setting up, a varied nature of expenses are incurred. It is very important to keep note of all expenses incurred along with the physical copy of invoices in file or maintaining records electronically. It gets important to have all records ready for claiming expenses while filing your tax returns.
- Sales projection:- To get an accurate read on how much money you’ll need to keep your business running in the first 90 days, you’ll need to forecast as how much revenue your business will produce in those initial 90 days. The greater the revenue, the less you’ll have to come up with funds from your personal resources.
In an ideal world, revenues would cover expenses (and then some), and it wouldn’t be necessary to figure out how much more you’ll have to pay to keep the business going. It might happen, but it’s not likely to take place within the first few months of operation.
- Open business bank account:- In the rush of setting up business, people forget to open a separate bank account for business and incur business related expenditure by their personal account which may lead to difficulty while preparing income and expense account.
- Identify your vendors:- Make sure to make a list of your vendor and their details along with purchase and payment records. It helps in maintaining good relation with them and balance in their account ready to know any time.
- Setting up a payroll system:- As the business is new it does not involve a large force, however with the passage of time team grows and it requires keeping all details ready about them from personal details to payment schedules.
- Tax Compliance:– Each country involves its own tax levy structure. It is very important to be ready for it from the beginning. Missing any tax compliance may lead to attract fines and penalty and disrepute the organization name.
Method of accounting to be used
a. Cash Method-Income and Expenses are taken in books at the time of its receipt or when it is actually incurred.
b. Accrual Method-Income and Expenses are recognized in books as and when the transaction occurs, irrespective of when cash is expenses or income is actually received.
Nowadays, Accrual Method of accounting is widely used as it shows a clear picture of business at any point of time along with helping business owner to analyze the functioning of business to take future steps and decisions accurately.
Why outsource book-keeping and accounting
In contrast with the past, these days, outsourcing your accounts to professional company is very popular and more reliable method. There are things to keep in mind before choosing an outsourced accounting firm in uae, which make sure reliability and other factors. The team of professional keep your business terms and work to you, working with integrity and confidentiality. The option of outsourcing is majorly used as it saves cost of hiring people, training them and setting a whole new accounting department in your organization, instead of that, a team of professionals will help you to carry out all work on time with their skills and trained staff.
The important thing about outsourcing or global sourcing is that it becomes a very powerful tool to leverage talent, improve productivity, reduce work cycles and tax return filing.
Hire an expert
Handling the startup and managing books and accounts at the same time becomes lengthy. Engaging an expert while going with a startup helps you in many ways –
- Helps in setting up customized accounting as per the nature and need of your business.
- Help while planning your major expenses.
- Let you know about various schemes laid down by government authority to ease your new business.
- Plan your taxes wisely by taking advantage of various tax incentives available for startups.
- Day-to-day update with compliance lead to save you from paying unnecessary fine and penalties.
Focusing on your startup product / services is very important but along with it becomes crucial to manage records of the business. Keeping note of mentioned points, plan your business processes integrated with accounting and payroll services.
This blog post written by Mr. Taher (CA), Tax advisor at Flyingcolour Business Setup, Accounting & Tax Services in Dubai and across UAE. For more detail, Please contact us at info[at]flyingcolour[dot]com or call +971 4 4542366.