Most of the companies in the region maintain books of accounts and get it audited through approved financial auditors and accounting and bookkeeping companies in the UAE. At the same time how many of us use that financial information received from auditors or accounting and bookkeeping companies for making financial decisions. Do we verify the reliability of the financial information that is prepared based on the accountant's knowledge? Is the Financial data plugged into the system is based on the nature of expenditure?
All the figures which are reflected in the MIS report are very important for the owner/investor received from the accounting and bookkeeping companies if you have outsourced one. The reliability of financial information is purely dependent on the quality of the accounting information/classification which is done by the accountant or accounting and bookkeeping companies.
Let us take the Profit & Loss Account. While analyzing the operating expenses, the accounting and bookkeeping companies have to break the expenses to a very minute level which will help to do proper analyses.
For example, break the expenses to Fixed expenses, Variable expenses & Semi Variable expenses depending on the nature of the expenses. If we can link the variable/semi-variable expenses to operating revenue, it will give control on expenses to some extent. Once the expenses are identified, we have to make proper segregation in our Profit & Loss Account. All expenses can be analyzed based on controllability.
When we are discussing the costs to the organization, classification of cost and its controllability are having a big impact on decision making. For example, if the cost is not controllable and decided by someone else outside the company where we don't have any influence, then we can't take any decision on that cost maybe we have to find alternate options (Eg: License cost).
Let us break the Profit & Loss Account in a detailed manner and classify the same to Fixed, Variable & Semi Variable. Depends on the nature of industry and business model it may change. But in the normal scenario, there is not much change like expenses.
Component of Payroll cost – Employee Salary, EOSB, Accommodation Allowance, Travelling Allowance.
Based on the present situation most, of the companies have adopted work from home (WFH) based on the nature of the job. Taking this as a base, companies can segregate the employee structure. Core employees of the organization whose presence is very much required for day to operations, Employee who can work remotely to support the core team, Freelancers & Consultants (need-based) who can support the organization as and when required and the contractors.
Based on the industry, even remote workers can appoint on a contract basis. Nowadays most of the management is not monitoring employees based on hours worked but based on the result/output. Based on the above, companies shall restructure Salary cost & Accommodation cost. For travelling, companies may use a common transportation facility or trip-based transportation which will help to reduce fixed Transportation Allowance.
Base – Based on Sq. Ft Area/ Location. At present most of the companies are facing a big decline in their sales revenue. It may continue for a couple of months. Based on the previous year's growth strategy, the company might have procured Raw material/Inventory to meet the customer obligation. It is the right time for the company to re-work the sales projection and the cash flow projection including expenses budget.
The customer may look for a product at a lesser price with an extended payment period because of the present market situation and the cash flow crunch. In the supply chain market delay from one component will everyone who is involved. As a supplier, you may force to compromise your cost, margin, and payment terms with your customer. By utilizing the present market opportunity, you may have to negotiate with your existing tenant for the rent reduction/extension of the payment terms.
If the location is not giving any value addition to you and the customer better to choose the location which will reduce your financial burden and cash outflow. You may have to work out the Sqft area required shortly for storage facility/production facility based on the revised production/sales budget.
(E.g.: Driver fixed Salary – Use the transportation company when there is a delivery)
To some extent.
Check if there is any possibility to cut the cost which will affect the product quality, brand value, or, customer base.
In the present scenario, all entrepreneurs are giving importance to cash. Until there is a realization into cash even Revenue, receivables & Inventories are irrelevant.
Now, most of the business wants to know the capacity of the company to run without injection cash from the investor's side. For the same, we have to have a proper cash budget and cash ratio. Rework your receivables and inventory and see how best you can turn into cash and see the cash conversion cycle.
Identify the gap between cash collections and payments. See all the possible options like negotiation with your vendor, deferment of payment, etc to manage the cash flow. This will give immediate relaxation but not for the longer-term.
This is the right time for you to analyze your Profit & loss account component with the support of Finance professionals and see how best you can restructure and reduce expenses and cash flow crunch.
Emirates Chartered Accountants Group offers a wide spectrum of accounting and bookkeeping services in the UAE that answer to the financial needs of any business in the global market equipped with highly qualified professionals in the related field of work.
+971 – 508873115