BOOKKEEPING: WHY IS IT AN INTEGRAL PART OF YOUR COMPANY'S FINANCIAL SYSTEM
For every business and for the people who run it, the importance of accurate financial statements cannot be underestimated. Every decision that is taken by the management has a direct impact on the company’s future; the most important decisions are those, which are associated with the business’s financial aspects.
To run a business effectively, you need to have a proper understanding of the finances and record of financial documents. Business owners need to trace and gauge every single dirham coming in and flowing out from their business & this creates the need for a robust bookkeeping system. Bookkeeping refers to the process of efficiently organizing and storing all financial documents of the company. Bookkeeping ensures that records of the individual financial transactions are correct, up-to-date and comprehensive. Accuracy and reliability are, therefore, vital to the process.
This is all the more true in a jurisdiction like the UAE, which has recently introduced the VAT. Businesses not compliant can face the prospect of heavy financial penalties. If your bookkeeping is not up to the mark, you might be staring at a major cash flow crisis at the time of paying your VAT liability to the government.
Bookkeeping: Pain Point and Opportunity
Though keeping proper business records is considered daunting and non-core, poorly tracked finances can be a major risk factor for a growing business. A poor bookkeeping system is amongst the most common reasons why many businesses fail.
A sound bookkeeping system helps the business in becoming financially stable and in compliance with related regulations and laws. By implementing the bookkeeping process, the companies can have access to all the financial information at one place. Instead of wasting time in scrambling for receipts, documents or invoices, the companies must adopt bookkeeping as a centralized system.
Some of the key benefits of bookkeeping for a company’s financial system are highlighted below:
Immediate Access to Financial Data
No matter where a company stands in its financial journey, an effective bookkeeping system allows the company instant access to all the information related to the company’s financial status. A comprehensive bookkeeping system allows a business owner to scrutinize the true health of their business.
A company needs to have an accurate record of spending and earnings to compare actual results with projections in the annual budget. A bookkeeping system helps the company to stay up-to-date with all the financial information that can be crosschecked with the budget to check the company’s financial position.
Compliance with the law/legal obligation
No matter the type of business, it should be in accordance with the local laws. Especially with increasing regulations, not maintaining company books can result in government penalties. The bookkeeping process helps the company in maintaining financial reports of the company and meeting legal obligations.
Well-kept records act as a reminder of a business’s expenses and earnings, which makes it easier for the company to report revenue for tax filings. Proper bookkeeping allows the company to avail the benefits of tax deductions and helps calculate the tax liability.
Attracting Investors and/or Lenders
Proper financial records are compulsory in UAE (and the world) if you are looking to raise equity funding from investors, VCs, etc. It is even more critical if you seek a loan from a bank. Why would anyone invest in or lend to a business, which does not execute proper bookkeeping?
To Make Crucial Business Decisions with Real-Time Data
An up to date bookkeeping system allows the companies to make important business decisions. Having updated books and records helps the company in knowing the factual truth and key problematic areas or opportunities. Accurate financials also keeps the companies on track and ensure you can take business decisions that are faster and smarter.
A Handle on Cash Flow
Cash flow is a crucial part in making a company successful. Without the required cash, a business will eventually go out of business. Getting a handle on cash flows allows the company to keep their vendors and employees happy and satisfied, which ultimately is a necessity for keeping the business successful. So, a comprehensive bookkeeping system helps the business owners to understand, scrutinize, estimate and forecast their inflows and outflows.
A proper bookkeeping system allows the management to assess financial numbers that can be used as a benchmarking tool. Management concepts like zero-based budgeting have bookkeeping at its core. Bookkeeping allows you to compare your expenses and revenues with the previous year’s performance or with competitors. This shines a light on business areas which need to be improved and can generate further profitability for the business.
There's always a possibility of fraud or embezzlement like check forgeries, manipulations, etc. in the business. Advantageously, a bookkeeping system can reduce the chances of these kinds of risks in the company. The fraud will be discovered in due course of time as compared to a company where the bookkeeping function is not properly structured.
Bookkeeping services include checking the accuracy and reliability of each payroll to make sure that employee receives the proper amount. Confirming payroll numbers keeps employees satisfied and prevents the company from over- or underpaying social security contribution as well.
Detailed and accurate bookkeeping is crucial for businesses of all sizes. It is all about how companies take control of their financial system. Bookkeeping is integral to the modern business environment and helps companies in getting a crystal clear picture of their financial position. Bookkeeping allows the company to have a thorough understanding of their finances, which empowers them to make informed decisions and reduces the risk of non-compliance or fund mismanagement.
Feel free to consult RSM UAE Habeeb Mohamed to discuss your Bookkeeping concerns. RSM is one of the world's leading audit, tax and advisory service network, recognized for innovative solutions across the globe.