Complex Made Simple

Here’s why 8 out of 10 UAE start-ups fail in their first 2 years

Dreamers are not accountants and surely are not versed in the latest and most effective techniques that will take them to safety.

Studies by Incarbia, a business management firm, found that 2 out of 10 start-ups fail in their first year.

6 more fail in their second year, according to Dubai Free-Zone website.

Sage, the market leader in cloud business management solutions, hosted a 4-month accounting roadshow across Dubai, surveying these very same issues.

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Here’s what they found

Sage surveyed more than 50 entrepreneurs to understand the challenges that they face with regards to business.

 The recently conducted survey showed that most SMEs struggle the most with accounting (37%) and cash flow management (37%), followed by reporting of expenses (14%) as well as billing and invoicing (12%).

Regarding VAT, 76% of the respondents were concerned about its impact on their businesses.

Of these, 57% said their biggest concern was their lack of understanding about VAT regulations and procedures, followed by returns-filing 18%.

Moreover, most entrepreneurs surveyed do not have a VAT-compliance accounting system in place.

“Business owners realize that if they are not prepared for VAT, it could impact various aspects of their business, from cash flow to operations, which could result in fines,” said Mansoor Sarwar, Director of Technical Services at Sage.

“Fortunately for UAE businesses, the tax authorities have been proactive in offering more clarity on regulations, and they have shown flexibility, by waiving penalties for nonregistration and extending the timeline for filing the first VAT returns.”

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Still the best place for start-ups

Most of the respondents offered positive feedback about the UAE as an entrepreneurial hub, calling the country a “great environment for starting a business” or stating that it offers a “huge market with many opportunities.” A few also raised concerns such as rising costs and overheads of running a business.

“Business owners who worry if they are not adequately managing business finances or VAT-compliance should try to find a smart accounting product capable of automating these processes.

This will allow entrepreneurs to focus on growing their businesses instead of getting bogged down by administrative tasks,” added Sarwar.

Earlier in March, Sage Accounting was one of five Sage products that received accreditation from the Federal Tax Authorities after undergoing a stringent vetting process.

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Top 4 other reasons why start-ups fail:

1-    Team out of sync: The founding team members can’t work together and in some cases don’t have the proper skill sets to overcome the challenges ahead, according to Business Insider.

These challenges include the ego of someone being smarter than oneself or the lack of complementary skills and inadequate financial skills.

2-     Poor funding: Many people think that they will make a profit in the first few months of their business’s lifetime – which can’t be farther from the truth – according to Fleximize, a funding firm in the UK, most businesses don’t make a profit until their third year.

3-    Faulty pricing: Pricing a product is hard for any company: price it too high no one will buy it, and price it too low you might be struggling to make a profit or even the product.

Finding the economic point of equilibrium is based on trial and error, according to any economics textbook, and this point can change due to many factors that might be out of anyone’s control.

4-    No demand: According to CBinsights, a surveying firm, this is the number one cause of start-up failure.

Even if you have a great team, an amazing reputation and everything else that makes your firm great, your product might not be needed. “Doctors want more patients, not an efficient office.”