An entrepreneur’s guide to building an accounting and book keeping function in Dubai: In-house accountant or a professional retainer firm?
Engaging in commercial, industrial or professional ventures involves many activities divided into multiple organisational functions over time, recurring and non-recurring. How does an entrepreneur keep track of them?
- What is the financial position of the business? How much has the investment grown?
- How much progress did we make in the last month, year or quarter? Is it as budgeted?
- How much do I have in receivables and payables? When is it due?
- How much taxes do I need to pay? What are the tax credits that I can offset?
- What are my overheads? How is it growing over time?
- What is the proportion of salary cost in my cost of goods sold?
- And many more…
Accounting and financial reporting for management work on two levels. The first is the data input and documentation level, and the second is a review and supervisory level that sets review mechanisms, systems, and controls and takes part in management decision-making.
Small and medium organisations face challenges due to insufficient resources and generally fill only the first level-namely data input level- and operate with limited information analysis capability. This, in turn, results in the finance element missing from the growth stage and exposes the entity to risks.
This article discusses the essential points every entrepreneur needs to remember while setting up an accounting and financial reporting function in UAE.
The basics of accounting. Why is it not listing expenses and incomes in a spreadsheet?
Top 3 assumptions in accounting, and why is it important?
What are accounting standards or IFRS? Is it mandatory in UAE?
Accountant needs to be educated and experienced
Financial reports: How to read them?
Hire an accountant or outsource to an accounting retainer. Points to consider in Dubai
When a business is young, it is probable that the resource allocation is primarily for growing businesses rather than support activities. As a result, entrepreneurs need to spend less on the accounting function. This results in compromising on financial expertise, one of the most critical elements in survival and growth. But, since the operations are not in full swing, the volume may not justify a full-time resource as well.
Generally, the trend in Dubai is to hire a junior accountant who needs to handle other functions like sales, invoicing, and other coordination apart from accounting. But accounting is a specialised skill; the accountant needs to be educated and experienced to bring value addition.
An ideal trade-off would be to outsource the accounting function until the cost of hiring a full-time accountant is justified with sufficient volume. Until then, using the service of an accounting retainer would balance the growth. The hourly cost of an outsourced accounting and CFO services firm in Dubai may be higher than the hourly cost of an in-house accountant. But, the firm efficiency will reduce the time required to execute the work, and the expertise of the manager will pay off with value addition. In addition, an outsourced accounting and bookkeeping retainer will help build processes and internal controls that will set a systematic base for years.
One important thing worth considering is the tax and regulatory requirements of the UAE and its respective emirates(Dubai, Abu Dhabi, Sharjah etc.). In addition, all Free Zones in Dubai, including DMCC, IFZA and JAFZA, have regulatory requirements that accounting firms are experienced in complying with, protecting the business from legal, regulatory and tax risks.
Experienced accounting firms are specialised domain experts with data entry and review mechanisms. The accounting retainer firm’s services are delivered as a package, and an expert reviews the work before it gets to the reader. Further, experienced financial managers of accounting outsourcing providers will assist management with a structured thought process.
The services of outsourced accounting and CFO service companies are highly customisable and can offer a service package tailored to the business requirement.
The accounting and CFO services provider will recommend a suitable structure when the operations demand an in-house accountant. Entrepreneurs can utilise the technical skills of the accounting expert to test, train and assist the hired accountant as he onboard. Good service providers are dependable and do their best that the business demand.
What to look for while hiring a best fit accountant?
Below are the essential things to be careful about while hiring an accountant.
Basic accounting rules of double entry bookkeeping
Experience in an accounting Software
Knowledge of the business
Critical thinking and attention to detail
Regional laws and regulations, including tax and employment law
An accountant should be aware of Dubai’s regional tax and regulatory requirements. While hiring expatriate accountants, one needs to be careful about the changes in the regulatory requirements of Dubai. Tax laws covering Value Added Tax Law, Corporate Income Tax, and the labour law are the most important.
Accounting software and tools
Accountants primarily work with numbers and double entry. Hence, an accountant should be proficient with the company’s accounting software. Cloud-based accounting software for start-ups and SME businesses in Dubai includes QuickBooks Online, Zoho, Xero and Odoo, to name a few. Entrepreneurs can look for experience in any of these programs while hiring an accountant. However, if there is no program implemented while hiring, the entrepreneur can consult an accounting and bookkeeping service provider, who will assist in selection, implementation and integration to achieve efficiency. While it matters for an accountant to be experienced in accounting software, it is recommended not to implement the same software just because the accountant is experienced in it.
Apart from accounting software, the accountant should be well versed with a spreadsheet application. The most widely adopted spreadsheet application in Dubai is Microsoft Excel. Following MS Excel in Dubai is better as information sharing will be easy with a widely adopted application. The accountant should be able to use formulae such as VLOOKUP, SUMIF, and Pivot function apart from basic formulae.
Other tools that will be handy include MS Outlook or the mailing application the company is using, MS Word and regular computing applications. The accountant should also be aware of the practical aspects of internet security so that confidential information is not compromised.
Accountants take care of tax returns and other departmental filings.
Even though the primary function is accounting, accountants in start-ups and small companies take responsibility for filing tax returns and other departmental forms. In Dubai, the most common compliance requirements are Value Added Tax, Corporate Income Tax, Economic Substance Regulations (ESR), Ultimate Beneficial Ownership (UBO) Reporting and Anti Money Laundering (AML). Even if an accountant can handle it in-house, getting help from an accounting and bookkeeping outsourcing consultant is recommended in the first few months to eliminate compliance risks.
Compliance should not take much time when the accounting is done correctly since the information is well organised and complete. However, some activities, such as tax reclaim services (Eg:- VAT Refund), take a substantial amount of time, primarily because of the reconciliations and time taken to liaise with the tax authorities.
Selecting an accounting and CFO service retainer who can bring in value
There are many accounting and bookkeeping service providers in Dubai. But it isn’t easy to assess the quality of service they provide before entering into a retainer contract. Below are some critical aspects you can use for an assessment.
Quality of people
Ask for the education and experience background of the consultant and the person handling the accounting. Ideally, a Qualified Chartered Accountant or a member of any professional accounting body, who is experienced as a finance manager in Dubai would be a good fit. One way to assess the quality is to understand the quote. A consultant who quotes reasonably can afford quality people.
Experience handling similar assignments
Ask the accounting retainer to share his experience handling other clients in Dubai. Discuss how services are being delivered at other client’s businesses.
Confidentiality and professional ethics
Accountants possess confidential information relating to the business. Observe if the accounting and CFO service provider is disclosing any confidential information relating to any client. Also, understand the ethical behaviour of the representative. Professional accounting and CFO service companies will have a Non-Disclosure Agreement with their employees and will encourage signing an NDA with the Clients.
Assess the understanding capabilities
While discussing, try to assess how the consultant understands your business. A good idea to observe this by allowing the consultant to discuss the areas that will be prioritised once the firm is onboard. Also, discuss how the consultant is planning deliverables. A skilled finance manager should discuss the business’s challenges and try to provide solutions with accounting functions.
Financial reporting skills
Discuss the reports that the consultant can deliver periodically and how far it is tailored and fit for the industry and the business. In addition, a growth-focused consultant will include reports on challenging areas the company should focus on in the long run.
Interaction with other functions
The accounting and finance function should interact with other functions such as sales, production etc. and act like an enabler. The understanding of the accountant regarding other functions will be a point worth considering. An accountant should be a watchdog and a team player at the same time.
While for larger companies, it is economical to have an in-house accounting function, small and medium companies may adopt an outsourcing model, where resources are limited. An outsourced accountant can also be of value during the initial stages of business as the provider will take the initiative in making operations systematic, with improved controls, and by adopting industry standard practices.
A hybrid model for accounting and reporting is recommended if the number of transactions is more and an accountant needs to be present at the client’s place throughout to handle transactions.
Accounting and finance management is an important element, more so in an early stage of a business. However, companies should carefully adopt an option that adds value to the growth.
Schedule a discussion with us to understand how your accounting function is performing and any scope for improvement.