Top Accounting Strategies in 2022 for UAE Manufacturing Businesses
Most manufacturing companies across the world rely on ”Lean Manufacturing”, which is all about minimising waste while maximising productivity. Companies that streamline manufacturing processes to reduce waste should also seriously think about streamlining their accounting process and using them to collect valuable operating information. Accounting firms in Dubai can help manufacturing businesses streamline their accounting processes.
Failing to adapt accounting for manufacturing processes make it tougher to understand how the changes in your operations make a difference to your manufacturing bottom line. Streamlining the accounting process is essential to reduce the costs as it helps you understand where your production costs lie. However, first, you need to develop a robust accounting strategy for which services of accounting & bookkeeping firms in Dubai can be availed. Here’s a guide for you to create an accounting strategy for your manufacturing business in Dubai:
1. Select the Right Accounting Software
You will need to install effective accounting software to properly track the accounts of your manufacturing business. The market is flooded with plenty of options, but don’t buy the first one you see. You need to choose the software wisely as the manufacturing accounting software may stay with you for the entire life span of your business. Accounting firms in Dubai can guide you on how to choose the best accounting software for your business.
2. Choose the right accounting methods
After the software selection, it’s time to decide on the accounting method you are going to use for your manufacturing business. The following list will provide you with an overview of the accounting method. However, it’s advisable to consultant further with accounting & bookkeeping firms in Dubai before making a final decision:
- Job order costing is used for batch manufacturing and is calculated by recording labour hours and raw materials units necessary for each batch.
- Process costing is used when there is mass production of a similar line of products or parts. The cost of each product produced is assumed to be the same as the cost of every other product.
- Activity-based costing assigns overhead costs and indirect costs to allied products and services. This method is based on the relationship between costs, overhead activities, manufactured products, etc.
- Variable costing includes the variable costs directly incurred in production but not any of the fixed costs
- Absorption costing is used when the cost of products includes all variables and fixed manufacturing costs – raw materials, labour costs, and factory overhead (FOH).
3. Keep track of your business data
Once you have set an accounting system with the right accounting method, you can start tracking critical business information. Some of the information you must track are given below:
- Transactions are expenses and revenues in a specific period, which include purchases, sales, repayments, loans, etc.
- Assets and liabilities are essential for the end of a given accounting period and useful at other times.
- Cash at hand must be tracked to understand how much cash you have in the bank at any given time
4. Analyse & Improve your manufacturing process
These methods can not only be used for tracking your company’s financials, but you can also use them to determine how efficiently your business is running. It can be used to make changes to your business operations, so it runs even better. Some of the common types of analysis are stated below:
- Cost analysis is an analysis of costs over any period you define. It’s good to understand your spending and how changes in input price impact product costs and profits
- Constraint analysis helps you identify bottlenecks, which will enable you to see where your business is being held back
- Margin analysis or profitability analysis helps you identify how much profit you make on each product. Even though useful, margin analysis can be replaced by constraint analysis.
- Variance analysis helps you to answer key questions such as how much is your budget? how much is your actual spend? It will help you understand the difference and why the difference exists.
5. Perform Inventory Management
Performing inventory management is critical for manufacturing businesses because at the financial year-end you will require to have a value associated with the number of goods in your inventory. Valuing the inventory is essential to establish the costs of goods sold and the amount of profit you generate. Given below are the four ways to value your inventory, however, the manufacturing company should analyze itself or with the help of accounting firms in Dubai to understand which method is best suited to their products:
- The First-in first-out (FIFO) method is commonly used by manufacturers having products with a shelf life. In this method products are sold in the order they are added to inventory
- Average Cost uses a weighted average of all products to determine and track inventory
- Specific identification tracks individual items of inventory, which is useful if you can identify each item with, for example, a serial number
Hire the Best Accounting & Bookkeeping Firms in Dubai
As you have understood from this article, accounting for manufacturing firms in Dubai is more than just recording numbers. You need expert assistance to carry out complex tasks such as inventory valuation, choosing the right accounting method, buying the best accounting software, analyzing your manufacturing process, and keeping track of your business data apart from statutory compliances like VAT, Excise Tax, Economic Substance Regulations (ESR), Ultimate Beneficial Ownership (UBO), etc. The best way to meet these requirements is by hiring the best accounting firms in Dubai such as Jitendra Chartered Accountants (JCA).
JCA provides bespoke accounting services in Dubai for nearly all sectors including manufacturing companies. We are valued by investors, SMEs, and individual entrepreneurs owing to our 20 plus years of experience in the UAE. Apart from providing accounting and audit services in Dubai, we also provide services related to VAT, ESR, UBO, and Anti-Money Laundering & Combatting Financing of Terrorism (AML-CFT).