Cash flow issues may lead to a ‘clearing out’ of UAE SMEs as the effects of the Covid-19 pandemic continue to make themselves felt, according to experts.
In an interview with Scott Cairns, the managing director of Dubai-based Creation Business Consultants, said that the “biggest challenge facing SMEs with regards to cash management during the Covid crisis is without a doubt planning.”
“In the ordinary course of business, a 12-week cashflow forecast to manage cash receipts and payments is a standard, accurate planning mechanism. This forecast is always predicated on known payment amounts and dates and anticipated receipts from clients,” he said.
“Uncertainty creeps in when the behaviour of current and potential clients changes unexpectedly. With all companies paying such close attention to their cash position, any delay or deferral in payment from larger organisations will have an exponential knock-on effect as the money trickles down the value chain,” Cairns added.
As the weeks and months of the pandemic continue, Cairns said that cash flow issues will no doubt result in a “clearing out” of the SME marketplace.
“The old adage of 1 in 2 SMEs failing within their first year isn’t exactly supported by research, although the news isn’t great,” he added. “US Bureau of Labor statistics found that 20 percent fail in the first two years and 45 percent fail in the first five years. To put this in context, this is with reasonable to favourable market conditions and adequate access to capital.”
By now, Cairns said that most SMEs should have moved to cut back on any non-essential expenditures and decreased fixed costs, as well as evaluated staffing levels.
“Other fixed costs that can be examined are leases for vehicles, equipment, offices and the like,” he added. “This is a good chance to renegotiate payment values, terms and timings. A landlord would prefer an operational tenant paying 75 percent of their rent than a bankrupt company owing 100 percent.”
Additionally, Cairns advised that UAE SMEs consider the outsourcing of services.
“In the short to medium-term, we are assisting clients in identifying fixed overhead costs that can be outsourced, identifying providers and ensuring that all commercial aspects of the business are taken care of,” he said.
“This decreases cash outflows as companies will often only pay on a per use basis. They remove items such as gratuity and leave entitlements from their balance sheet and in some cases, end up with a greater level of service, skill and delivery from their outsourced provider. This can include services such as accounting, administration, HR, PRO services, legal and taxation,” he added.
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