The UAE Business fraternity has welcomed measures to partially reopen offices. With the Dubai Economy laying out a set of safety guidelines for the same, the business world is slowly back to partial resumption.
For a number of businesses, likely government measures to minimize public health risk may result in a marked decline in demand for products or services accompanied by labor shortages and supply disruptions.
Businesses must assume that health authorities will ask people to stay home and may only continue to marginally allow staff attendance to contain the spread of COVID-19. It is presumed that large numbers of the working population will voluntarily stay home which will result in people consuming less and purchasing in different ways.
Staff availability will be a marked challenge, especially for businesses where employees cannot work from home. Supply disruptions are highly likely as the business’ suppliers may face similar issues. Social distancing measures were already put in place in offices across the UA from early March 2020. However, safety measures for employees continue to be a priority for all stakeholders.
The crisis was unforeseen and has impacted everyone alike – from corporates to private business owners.
It is understandable that it may take some time before the previous demand level in areas such as general corporate and commercial works is back to normal. The business fraternity will go through periods of adaptation as the world ventures further into unchartered territory
This could place the immediate future of even the most established businesses in serious jeopardy. What further adds to the woes of SME’s is that there is practically no way of knowing how long this pending crisis will last.
As part of a comprehensive risk management strategy, there are a range of actions one should consider taking now to prepare their businesses for COVID-19, in order to place them in the best possible position not only allowing them to navigate through the crisis but also assisting in better preparing to take advantage of the recovery
1. UPDATING FINANCIAL AND MANAGEMENT RECORDS:
It is imperative that in order to make the best possible decisions in a difficult environment, the key management requires access to the most up-to-date information on the state of their business finances. Therefore, we recommend bringing your financial statements up to date and perpetually updating them.
2. IDENTIFYING POTENTIAL IMPACTS ON THE BUSINESSES, KNOWING THEIR FINANCIAL LIMITATIONS, AND DEVELOPING MITIGATION STRATEGIES TO COUNTER THEM.
Assess and discuss the likely impact that COVID-19 may have on your business with your current staff and other key stakeholders; Especially, your suppliers and customers.
The areas most likely to suffer impacts within a business ( in no particular order of appearance) would be:
Sales –More likely to be affected if you have little to no online presence.
Finance– Especially for businesses whose cash reserves are low or ones that operate on daily cash turnovers.
Staff availability – with people likely to be subject to restrictions on their movement, their ability to work will be curtailed, particularly if there is limited scope for them to work from home.
Supply chain – This is highly likely to be significantly affected if you rely on suppliers from seriously affected regions and territories.
If your business is already impacted, start by listing what those impacts are. If you are not impacted yet, you should still be able to make some informed projections. In listing those possible impacts, attempt to quantify what those impacts will have on your business and identify possible strategies to mitigate those impacts.
3. PERFORM A FINANCIAL HEALTH CHECK ON YOUR BUSINESS
As discussed in Point 1, real-time information on the financial health of your business is fundamental in assisting you to decide what you can and should do now in order to help your business navigate through the crisis.
To start with, Financial Ratios carry a significant amount of information derived against the analysis of your financial statements which may serve as a good measure, to judge the financial health and performance of your business
4. RE-VISITING YOUR BUDGETS WITH REVISED ASSUMPTIONS
The assumptions you may have used to produce your budget are most likely no longer relevant a the crisis prolongs. Working with your Finance Department, you may be able to list the possible impacts of COVID-19 that may have developed against your assessments and re-do your budgets. You may want to include a range of possible previously highly unthinkable scenarios, that may range from projecting a 50 to 80 percent decline in sales over three to six months, or a supplier is unable to supply you a key item for six weeks. Carefully consider how each of these scenarios may impact your cash flows.
5. ADOPTING A PRO-ACTIVE APPROACH TOWARDS IMPROVING
YOUR CASH FLOWS
Having re-visited your budgets and assessing the financial health of your business, including your cash reserves, you are likely to find your business will struggle with cash flow in the near future. You must therefore act now to improve cash flows.
The first step in this regard would be to prepare a cash flow forecast, regularly updating it throughout the crisis, on a rigorous basis, possibly even weekly. This is all likelihood may forewarn you of any cash flow problems allowing you to act early in order to address them
The following tips to improve your cash flow may appear unorthodox and extreme. Some of them are not recommendable solutions under normal circumstances, however, you may soon be
operating in an environment you have never experienced:
DEBTORS MANAGEMENT
- Contacting your debtors asking them to pay you, even if before the due date.
- If your debtors are experiencing cash flow difficulties themselves, be ready to negotiate periodic payments, and take steps to ensure they stick to their side of the deal.
- Avoid delays in invoicing. Invoice as soon as the product or service is delivered.
- Produce regular Debtor Aging reports and follow up with aged debtors.
- Reduce debtors by encouraging customers to pay at the point of purchase or to pay early possibly attaching discount conditions to ensure early cash recoveries.
- Only pay commission to sales staff when payment is received on their sales.
- Review sales contracts to determine the circumstances under which customers can cancel orders. If necessary, update the contracts to limit the ability of customers to do so.
CREDITORS MANAGEMENT
- Seek payment extensions, even if temporarily to enhance your credit terms with suppliers.
- Check your supply contracts to determine the circumstances under which you may cancel orders if necessary, or at least delay their delivery.
- Negotiate installment plans with tax authorities to improve cash flows.
REDUCING CASH OUTFLOWS
- Cut spending in areas you believe may be unnecessary in a crisis, such as advertising.
- Delay unnecessary capital expenditure.
- Take steps to reduce staff costs by reviewing staffing arrangements. This could include reducing employee or contractor numbers, reduced working hours, or implementing a recruitment freeze.
- Reduce your drawings from the business.
SEEK FINANCE TO FILL CASH SHORTFALLS
- Speak to your lenders about introducing or increasing your overdraft facilities. You may need to take steps to demonstrate that you are on top of your business and understand your cash flow.
- Entrepreneurs may want to assess their own personal cash position to see if they can inject cash into their business.
- Seek out other investors to see if they can inject cash into the business.
CHANGE YOUR BUSINESS MODEL
Look at different ways to deliver your product or service to your customers.
ASSET MANAGEMENT
Sell or lease out assets that you don’t need. Some of these actions may be detrimental to your business in the recovery stage. Keep an eye open for changes in the environment so that you can return to normal business operations quickly.
6. INCREASE ONLINE SALES
The post-COVID-19 experience has shown that customers are likely to stay home (whether at the instructions of health authorities or by choice), and therefore, purchase more online.
To remain viable, many small businesses will need to begin selling online or at least significantly increase their online sales. A key step in preparing for the crisis is investigating through different online platforms to see which one best serves your needs to sell your products and reduce your reliance on your shop front.
You should also review how best to deliver your products to the customer. Your accountant may be able to assist you with these important considerations.
Suppliers of services should investigate digital solutions to the delivery of services to reduce the need for face to face contact. Consequently, you may choose to close some of your physical locations.
7. TALK TO KEY SUPPLIERS
Talk to your key suppliers about their ability to deliver goods or services reliably during the crisis. Consider not only their ability to produce the inputs you need, but also the transportation of the products to you and keep to the agreed costs/prices. In case your suppliers are based in a location most affected by COVID-19, their production may have seriously suffered, and their ability to get those supplies to you might be restricted. Consequently, those key supplies take longer to arrive.
If there are further import restrictions based on product origins, you may need to assess the time spent at customs clearance points before you are able to utilize the goods. In such scenarios, you should consider setting up alternative suppliers, including local suppliers even if more expensive. You may want to source them now and start price negotiations early
8. IDENTIFY EMPLOYEES WITH CRITICAL SKILLS FOR YOUR BUSINESS
Consider which of your employees are not easily replaceable against business functions that need to keep operating regardless. Look for others who can learn the task. Outsourcing may be an alternative solution. Where such employees can work from home, make sure they take the equipment (such as a laptop) they need to work from home, with them every night in case you have to close your premises at short notice.
Consider developing a special roster so that critical staff is always available to keep essential business systems and processes running.
9. MEASURE, MEASURE, MEASURE
There are a number of key indicators that will quickly tell you how your business is tracking. They could be as simple as the value of daily sales, or the cash balance or the debtors’ balance, or the value of orders and bookings. Create a graph showing these key indicators and update it daily or at least weekly. It will quickly show you any trends as they emerge.
10. DO A REALITY CHECK ON YOUR BUSINESS
Use the crisis as an opportunity to reflect on your business, how it was being run, how you would like it to run post-crisis, and whether it is still right for you. Questions to ask yourself include:
• Were you happy running your business before the crisis?
• Were you making the profit you wanted?
• Do you like being your own boss?
• Was there adequate cashflow in the business prior to the crisis?
• Are you achieving the return on investment you want from your business?
• Are you prepared for the potential extra demands that recovering your business will
place on you, both personally and financially?
• Can you afford to continue to run the business while your business is recovering?
· Can you foresee any possible emerging opportunities for your business following the crisis?
11. IF YOU ARE IN FINANCIAL DIFFICULTY, SEEK PROFESSIONAL ADVICE EARLY
During the crisis, repeatedly ask yourself the following questions:
• Is your business able to pay your creditors, your tax obligations, employment obligations, and make loan repayments as they become due?
• Do you have adequate financial reserves to cover debts due and payable in the next few months?
If you answer no to these questions, you should immediately seek professional advice, as your company may be insolvent or near insolvent.
There are risks if you continue your company while it is insolvent. Getting advice from a registered liquidator, or your accountant or lawyer to understand the complexities in this area is important. If your small business is in financial difficulty, be very wary of anyone cold-calling you, promising financial salvation. Such people may advise you to deliberately liquidate your company to avoid paying debts and continue your business through a new company.
