Setting up a Startup to Sell it in the future? Follow these Accounting Lessons
Selling a company to prospective buyers is regarded as one of the best exit strategies for business owners. Entrepreneurs build their startups in such a way that big investors or companies can acquire them later. Apart from an innovative idea, the buyers would be checking the financial health of the startup, for which entrepreneurs require the assistance of the best accounting firms in Dubai. The buyers would look at whether the startup’s books of accounts are proper, tax returns are filed on time, and regulatory requirements are met.
Startups in the UAE gained broader public attention when Amazon acquired e-commerce firm Souq and Uber bought car-hiring service company Careem. Such startup stories are highly inspiring, but you need to build a company with strong financial health to replicate the success of your predecessors. In this article, we delve deep into the essential accounting lessons you should master in order to sell your startup to prospective buyers in the future.
Ensure your Finances are in Order
Any investor or company planning to take over your business will inspect whether your finances are proper. You need to ensure that your company’s accounting and bookkeeping practices are accurate. Maintaining books of accounts not less than five years is a mandatory requirement for UAE companies as per Federal Law No 2 of 2015 on Commercial Companies, the UAE VAT law and relevant free zone laws.
Some entrepreneurs might overlook this requirement, citing the company’s size as an excuse. However, if you want future investors to be impressed with your company, it is absolutely necessary to maintain the accounting books as per the law. It is better to hire the services of accounting & bookkeeping firms in Dubai to efficiently maintain the books of accounts.
Your Company Should Have Strong Cash Flow
There is an old adage that holds true for small businesses and startups: ‘Cash is King’. A strong cash flow helps your company move ahead, and therefore, it shows the startup’s ability to generate and use cash. Prospective buyers can use the cash flow statements to understand your company’s financial position. Bad debts and customers who delay payments are most likely to weaken the cash flow of your startup. Entrepreneurs can get robust cash flow advice by enlisting the services of the best accounting companies in Dubai.
Get your Financial Statements Audited
Companies operating in Dubai free zones are mandated by the respective free zone authorities to get their books of accounts audited by approved auditing firms in Dubai or UAE. However, free zones in the Northern Emirates do not enforce the submission of audit reports. SMEs and Startups operating their business in the UAE mainland also keep away from submitting the audit reports to the licensing authority due to lack of compulsion.
However, if your ultimate aim is to attract investors to buy the startup in the future, you should get the accounting books audited by registered audit firms in Dubai, UAE. Investors rely upon the audit reports to get an accurate and fair view of the company’s affairs. Audited books of accounts will be free of material misstatement or fraud, and potential buyers will put more trust in your startup.
Ensure VAT Compliance If Eligible
As per the UAE VAT Law, a company is required to register for VAT if its taxable supplies and imports cross the threshold of AED 375,000 per annum. Companies can apply for voluntary VAT registration in the UAE if their supplies and imports exceed AED 187,500 per annum. Register for VAT if your company meets these criteria for UAE VAT registration.
Taxable persons in the UAE are required to file a VAT return to the Federal Tax Authority (FTA) at the end of each tax period within the timeframe specified in the UAE VAT Law. As per Executive Regulations of Federal Decree-Law No (8) of 2017 on VAT, the standard Tax Period shall be three calendar months, ending on the date that the FTA determines. Late filing and non-filing of VAT returns will make your company liable for hefty penalties imposed by the FTA. Potential investors would not be inclined to buy your company if you have incurred VAT administrative penalties in the UAE. Accounting firms in Dubai can help you with maintaining books of accounts as mandated by the FTA for VAT purposes.
Comply with Mandatory Economic Regulations
In a bid to streamline the economy with global standards, the UAE has introduced certain regulations such as Economic Substance Regulation (ESR), Ultimate Beneficial Ownership (UBO), and Anti-Money Laundering (AML) laws. Entrepreneurs need to check whether their company comes under the scope of these regulations. Failing to meet the regulations would make you liable for penalties and consequence such as sharing of information with foreign competent authorities or revoking of trade license. Such actions would render your company undesirable for future investors. Accounting companies in Dubai, however, can help you in complying with regulations including ESR, UBO, and AML in an efficient manner.
How can Jitendra Chartered Accountants Assist You?
Building a successful company to sell it in future is a common exit strategy as far as startups are considered. However, an entrepreneur needs to stick to the basics of accounting to make the company financially healthy. Potential buyers would scrutinise a company’s audit reports, VAT filing history, and good reputation among authorities, and therefore, the assistance of the best accounting firms in Dubai, such as Jitendra Chartered Accountants (JCA), would make the acquisition easier.
JCA can assist you in implementing a robust accounting system within the organisation. We would assist you in maintaining the company’s books of accounts in compliance with the relevant UAE laws. As a one-stop solution, JCA helps the companies comply with VAT, ESR, UBO and AML regulations. Consult with JCA to make your company appealing to prospective buyers.