“The biggest mistake a small business can make is to think like a small business.” 

Are you an SME owner, a business partner, or someone with a business dream? Learn about how to build a business from scratch using a few essential things.  

No matter the size of the company, whether small, medium-sized, or large, the basics must always be managed in the same manner. It is the duty of business owners to take caution in all areas of their enterprises in order to ensure their expansion.  

Big businesses employ more people and separate teams for each purpose. This may not be the condition of SMEs. The majority of SMEs have a small workforce, and one employee may be looking into several items simultaneously.  

Small and medium-sized businesses, or SMEs, are expanding everywhere. Although it is simple to start something, managing it and improving it is more challenging. From the beginning, there are a million things to take care of. 

Top 5 SME essentials 

Laptop/ Desktop 

A laptop/ desktop is as necessary as you need a pen or pencil to write. Even while smartphones can now perform many computer-related tasks, owning a PC is still recommended. The files can be accessed by everyone concerned without compromising your privacy. When compared to a mobile phone, it also has more storage.  

Business Plan 

Every stage of growth requires a plan. You must have answers to numerous Whats, Hows, Whys, and other questions. First, decide on your business concept and develop a workable plan that will enable you to work without stress.   

Market Analysis 

Finding evidence for a market segment that can be exploited is, to put it simply, the goal of market analysis. For instance, if you want to start a furniture company, you need to find out what the market needs and what is missing from the market. It helps you gain more knowledge about your competitors and potential clients.  

A close-knit team

The power of teamwork is not something that needs to be explained here because you know it already. Make sure you handpick your team members, whether there are two of you or 200. A diligent, reliable team can accomplish great things.  

Accounting Software 

Accounting Software? Do you think that it is a luxury for an SME?  

Having an expert accountant on board might stop you from using accounting software, which is common. Accounting software for your company is strongly advised, even if you are an accountant yourself. Compared to people, technology tends to make fewer mistakes.

You may come across various options while looking for the ideal software. It is up to you to choose the best one for your company’s requirements.  

Accounting software is used for more than just bookkeeping; it also helps with tax computations, inventory management, payroll management, record keeping, and other tasks. You are liberating yourself from your office by employing software for all these functions.

Keep your business close to you even when you go out of the station.  

Why only these 5? 

There are countless additional elements and activities that are crucial to every organization. These are also the five most fundamental requirements that must be set up even before a business idea manifests itself. You can move on with confidence in finding a location, inventory, etc. after these are in place.  

Success does not happen overnight; it is a result of your hard and smart work. Never compromise on the quality of your work according to the size of your business.  

You might have heard the term ‘Bank reconciliation’ multiple times but did not bother to go in-depth to find out what it is. If you are someone who is in the business game or who is interested in such details, you might know this. Let us see what it is and how it helps in your business in the simplest way. 

Bank Reconciliation: Definition 

Bank reconciliation is the process of identifying, comparing, and matching your financial records and bank statements. Your company’s financial records must match its bank statements. Any discrepancies in it may lead to errors and complications.  

How does Bank Reconciliation help in business? 

Reduces the chances of errors 

Reconciliation helps you to detect common accounting errors. There are chances for you to mention unpaid invoices as paid and so on. Such errors in calculation, addition, and subtraction can be detected and avoided using reconciliation statements.  

Supports you in making financial decisions 

Referring to your bank statements or account books separately cannot help you to summarize your transactions and balance. Even if you forget to enter any transactions to your account book, bank reconciliation statements might help you figure out the correct balance. Thus it supports making the right financial decisions. 

Prevents theft from your account 

As you use multiple methods of payment, you are prone to bank-related thefts. There are people who steal money from your accounts without any cards or cheques from you. But, any such unauthorized transactions and issues can be easily identified using reconciliation statements.  

Is it necessary to reconcile your records? 

Yes, reconciling your records is as important as anything else related to it. Imagine you have a profit of AED 50,000 in a month, and it is shown in the financial records, but your bank statement says that you have AED 47,000 only. There is a difference of AED 3000. While doing business you cannot be ignorant about even a single penny leaving or coming into your account. 

Bank reconciliation statements enable you to summarize your banking and financial records. They verify that the payments and cash collections have been processed or not.

As you are on this page, we assume that you either live in the United Arab Emirates or are curious about the subject. In either case, you are in the right place. We cannot avoid paying taxes in our daily lives. We all pay taxes every day in one way or another. So, it’s important to keep up with the latest developments.  In UAE, most of the goods and services are subject to Value Added Tax. After each tax period, every taxable person in the UAE is supposed to file a VAT return with the Federal Tax Authority (FTA). 

• The new federal corporate tax on business earnings of 9% on profit would take effect only on June 1, 2023. 

What is VAT?  

VAT stands for Value Added Tax. At each stage of an item’s manufacturing, distribution, and sale, it is levied on the gross margin.   

Read: How VAT work in UAE? An overview. https://www.simpleaccounts.io/2020/09/08/vat-in-uae/ 

Read: How to file your taxes easily? https://www.simpleaccounts.io/2022/03/03/file-taxes-easily/  

How to Avoid VAT Penalties in UAE?

Record your transactions 

Keep records of every business transaction including income, cost, expenses, and more. Having proper records of transactions helps while filing VAT and other taxes. The government may ask for the records and the failure to submit them on said time attracts a penalty. Recording the transactions also helps in being organized.  

Learn about taxes 

Know everything about VAT and other taxes, if any. You are supposed to pay the tax to the government which you collect from your customers. The government also reimburses the tax you paid to your suppliers at the same time. Everyone should be aware of the taxes in the nation, regardless of their line of employment. Being updated about all these assists you in making the right decisions without being fined.  

Register for VAT 

Register your business for VAT if your annual turnover is more than AED 375,000. If your annual turnover is more than AED 187,500, it is optional. The criteria for VAT registration vary according to the turnover of the businesses. As you are running a business, you must be knowing the criteria. So that any future complications can be avoided. 

Keep note of the tax periods 

A tax Period is a specific period for which the payable tax shall be calculated and paid. While the tax period is monthly for a few, it is quarterly for others. File VAT returns monthly for businesses with an annual turnover of AED150 million or more and quarterly for businesses with an annual turnover below AED150 million. 

Send Tax Invoices without fail  

A taxpayer must send out a tax invoice within 14 of the date of supply [Article 67 of the UAE VAT Law]. Never miss mentioning the name, date, company details, and other information on the receipt. 

Learn how reverse charges work 

Businesses who buy items from vendors based outside of the UAE are typically subject to the Reverse Charge Mechanism, a special tax treatment of the UAE VAT.  When products and services are imported from outside the GCC, these fees are applied. So the business houses must be knowing about the mechanism to record in the transactions.  

Update about Zero-rated and VAT-exempted supplies 

There are other categories such as zero-rated supplies and VAT-exempted supplies, learn about both and make sure that you file taxes accordingly. Zero-rated supplies in UAE VAT refers to the taxable supply on which VAT is charged at zero- rate. 

Tax Penalties 

20 days are given to pay the underpaid taxes without penalties. 

Following the 20-day grace period, a 2% penalty will be assessed, followed by a 4% monthly penalty that must be paid at regular intervals beginning one month after the due date. The cap on the penalties remains at 300%.  Therefore a business must maintain proper records, failure in submitting the records when asked may attract a penalty of AED 10,000 for the first time and 20,000 on repetition.  

Even the smallest mistake in records can attract heavy penalties. The above mentioned are a few among them. 

It is the responsibility of the business houses to keep track of the records and developments regarding the taxes. There are fixed fines and penalties for every mistake that happens while filing taxes. If you are looking for ways to avoid such penalties, the only way to do so is to be vigilant about taxes.