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Why Being Bad at Bookkeeping Can Be Disastrous for Your UAE Business
It is quite a well-known fact that hundreds and thousands of people all around the world are business owners, and many of them have set up their companies in the United Arab Emirates. This perhaps has something to do with the fact that its political environment is suitable for business, and its economy is booming, which assures them of high profits and returns.
As a business owner, you understand the importance of all the different departments of your company (whether small or big) working together. You would know that unless all of them do their work to their fullest potential and cooperate with each other, you would not be able to realize your company’s goals. However, while these departments are all extremely important, a major aspect of a business is financial management.
Unless all the financial transactions and data are handled properly, you would not be able to carry out any operations, which means that bookkeeping (or accounting) is essential for your company’s smooth functioning.
Why is bookkeeping an integral part of every business?
Bookkeeping refers to the entire process of systematically organizing all financial transactions of a company (which could be receipts, bills, invoices, payments, discounts, purchases, etc.), recording it. This work is done by a bookkeeper and is a very important process in accounting. It is on the basis of these records that accountants prepare reports analyzing the company’s financial situation, which are used to figure out where the company is spending extra, where it needs to spend more money, where it should allocate more funds, how to save money etc. Bookkeeping, however, should not be confused with accounting as it is only a part of the latter; an accountant can be a bookkeeper but not the other way around.
Bookkeeping is extremely important for any business, regardless of its area of operation and its size. Every company needs to have an idea of its finances and how they are being managed since every department needs funding to carry out its operations, and also, the company as a whole would need to make payments, investments, etc. which of course requires money. There, the work of a bookkeeper becomes quite essential since it is on the basis of this work that the company can find out where and how much money it is spending, whether it is more or less than necessary, which department needs for money, where to make investments, how to cut down on unnecessary expenditures. Moreover, bookkeepers can also advise you on tax-related matters, audits, etc.
How Can Being Bad at Bookkeeping Prove to be Disastrous for Your UAE Business?
As mentioned above, a major factor in how a business/company is run is how its finances are handled, i.e., the bookkeeping (or accounting) process. It is crucial that you have a qualified and experienced bookkeeper managing everything; otherwise, it could turn out to have a negative impact on your business. The following are the effects of bad bookkeeping:
- Costly: One of the most common effects of bad bookkeeping is that it can be quite costly, especially in the long run. If you have the work done, and it is not up to your expectations, or you find some errors in it, you would surely want them to be rectified, for which you would need to either hire a new bookkeeper or would have to have the same person do it. This means that you would need to pay more money than needed since the work should have been done properly the first time around. In the long run, these bookkeeping costs add up and deplete company resources, since bookkeeping is an essential function which cannot be done with.
- Time-Consuming: Again, if you find errors in the results, whether it has to do with the organisation of the data, calculations, information that was missed out, etc., you will want to have it corrected so as to get an accurate idea of your company’s financial situation. In doing so, it would take a lot longer; it could also be delayed beyond a specific date, which could create problems related to filing tax returns, etc.
- Diverted Attention: Since finances are extremely important for any business, it is key that they are recorded and managed properly so that you can make further business-related decisions. If you realize that the bookkeeping work that was done was not accurate or was incomplete, you will need to have it all redone, which would, besides taking up a lot of resources and time, would also divert attention from something important. For instance, if your marketing department needs for attention and finances, getting your bookkeeping work done again could possibly compel you to focus less on the former and more on the latter.
- Problems Go Undetected: If the bookkeeper or the bookkeeping service you hired is not qualified or experienced enough, there is a possibility of any discrepancy in the finances or related data going unnoticed, and thus, going unsolved. In business, big or small, there is a constant flow of money, and it is often difficult to detect irregularities regarding the same, but these could become problems later in the future, especially if all added up.
- Delayed Filing of Tax Returns: As a business, you are legally obligated to pay taxes to the government, and as a business in the UAE, you are also required to charge Value Added Tax or VAT on any products you sell. This means that you would need to file your tax returns by a specific date, and issues with bookkeeping could lead to delays with the same, which means you might face a penalty. Moreover, you might also find that there are issues with the VAT calculations, thus meaning that your company failed to adhere to VAT regulations.
- Problems with Decision Making: Since almost everything to do with a company’s functioning depends on how its finances are managed and how much money it is spending and earning, it goes without saying that bookkeeping is an essential service. If it is not done properly, it is quite likely that you would not know how your company is doing financially, may under or overestimate its finances, and at the end, might end up making an error of judgment with regards to business-related decisions.
Bookkeeping is absolutely important for any kind of business, but it equally crucial to ensure that the service hired is able to do the work properly and is able to deliver accurate results; if that does not happen, there are great chances of it negatively affecting your business.