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Number crunching for startups – how to record your finances

January 7, 2019

Number crunching for startups – how to record your finances

Being on top of your startup’s finances from day one can save you precious dirhams and get your business off to a flying start.

It’s easy to overlook accounting jobs when getting a business up and running, but establishing a strong financial structure is critical to success.

Recording finances breaks down like this:

  • Record cash flow constantly
  • Keep track of debt
  • Manage your outgoings
  • Don’t forget VAT and other records

By doing the basics right, you can keep costs down and gain control of cash flow while minimising the need to outsource all your accounting.

Record cash flow constantly

If you don’t know where your money is coming from and going to – at all times – you may find yourself in deep waters.

Recording and monitoring your cash flow from day one is key to startup survival.

To avoid the cost of outsourcing, you can keep track of cash flow by recording it manually using Excel or by using accounting software such as Quickbooks, Zoho Books, or Xero.

With a simple Excel spreadsheet, start by tracking your cash inflows and cash outflows.

For cash inflows, record:

  • How much you collect
  • What it’s for
  • When you collect it
  • Who you collect it from

For cash outflows, record:

  • The amount you spend
  • What it’s for
  • When you spend it
  • To whom you pay it

Don’t forget to keep copies of all invoices received and sent. These basic items will be all you or your accountant needs to prepare your taxes, and if required, a basic set of financial statements each month.

Entrepreneurs new to accounting may wish to consider using Excel initially before moving onto advanced software when more information is required or when the business expands.

Is accounting software right for your startup?

Accounting packages can help you do anything from creating invoices and estimates, to sales and purchase ledgers. They can also be used for invoicing and tracking, VAT and tax calculations, management reporting, and credit control.

This can be a lifesaver when a startup takes off. But make sure the accounting software does what you want it to.

Also, check for compatibility with your computer operating systems, or use a cloud-based provider, and consider how much staff training will be needed.

Keep track of debt

Timing is everything when it comes to managing incoming payments. Securing timely payment from clients is critical for businesses of all sizes, but non-payment or late payment can be especially challenging for startups.

In 2017, average payment terms for businesses in the UAE ranged between 60 and 90 days. One of the main reasons for late payments was administration inefficiencies such as weakness in debt collection.

Having a clear view of your incoming payments is the first step to avoid getting into financial difficulty.

Consider:

  • When incoming payments are due
  • When incoming payments are made
  • When your account balance hits a lower limit

Constantly checking to see whether payments have been made can be tricky for startups. Save time by setting up real-time alerts to get a snapshot of your cash flow without spending hours every month checking your account.

Set follow-up deadlines for payments to help avoid late payment. With just a few simple procedures, you can keep on top of payments and chase late payers in a timely and cost-effective way.

Manage your outgoings

Make sure you always know how much money is flying out of your business bank account. Use Excel or download a bookkeeping app such as Quickbooks to record and categorise all your expenses.

Overspending occurs when entrepreneurs don’t realise how much money they have spent over a certain period. Keeping track of outgoings will help you identify money wastage.

The importance of setting a budget from the outset cannot be underestimated. This means identifying and recording the actual setting up costs as well as ongoing business costs.

Typical costs include premises, staff wages, utilities, equipment, and marketing. Don’t guess these figures. Do your research to avoid underestimating the true cost of running your business.

The UAE is notoriously difficult to access credit, but this can be seen as a good thing as it is more difficult to get into debt. If you do need to take out a loan to help with your startup costs, make sure it’s from a reputable source and keep track of the payments.

Keep full financial records including VAT

It may seem obvious, but you need to be on top of all your financial records at all times. This typically includes a statement of retained earnings and cash flow, income statements, and the company’s balance sheet and tax returns.

Keeping these records – and organising them effectively – is a key element in a successful business.

Importantly, as of January 2018, entrepreneurs in the UAE need to get to grips with VAT (value added tax).

A standard rate of 5% VAT is now charged on most goods and services except those considered most vital to the economy.

UAE companies should register for VAT if the value of their taxable supplies exceeds AED 375,000 over the previous 12-month period, or is expected to exceed that threshold in the next 30 days.

You can also register voluntarily if your supplies and imports (or just your expenses if you are a startup business) are expected to exceed AED 187,500.

What does this mean for your business?

VAT-registered companies in the Emirates are legally required to prepare and keep a range of business records so the government can carry out checks.

The authorities can ask for annual accounts, general ledgers, purchase daybooks, and invoices issued and received, as well as credit and debit notes.

Maintain these records for a minimum of five years and make sure they are up to date. You’ll need them if your business undergoes an audit.

Get it right from day one

Recording finance records may seem daunting at first, but prioritising your accounting from day one will save you time, money, and hassle further down the line. And it will give your startup more chance of success.


Steve Mayne | Managing Partner – CREATIVE ZONE

Steve Mayne is a founding Managing Partner of CREATIVE ZONE – Dubai’s largest company formation firm, established in 2010. He brings more than 26 years of experience in sales, business consultancy, corporate leadership, and entrepreneurship to his many commercial and community endeavors. 

He has also worked with a number of global organisations specialising in logistics and process engineering. With his expertise in workspace solutions and company formation consultancy, he has played an integral role in providing support and advice to many startups and incubation centres.