The UAE is likely to struggle to recover from the impact of the COVID-19 pandemic, particularly in Dubai which is largely dependent on the real estate construction, retail and hospitality sectors. In these challenging times, it is important to know well in advance what impact a slowdown will have on the cash flow of the business.
Cash flow is the lifeblood of your business. Money must continue inflowing and outflowing for optimum business health, with the obvious goal being that you bring in more income than you must spend on expenses. You’ll have expenses as long as your business exists.
Here are the top tips to help manage your cash flow during this period of uncertainty.
Protect your cash flow
Cash is the oxygen to a business. It flows in and out, keeping the company alive. As long as you have it flowing in, you can make it work.
If you’re a business owner, it’s essential that you understand and track your cash flow; you need to know how the amount of money you bring into your business compares to the amount going out. If you’re spending more than you’re earning, you need to make changes to avoid going bankrupt.
It’s important to regularly track the movement of funds in and out of your organization to determine the financial status of your business and what it will be in several months.
Create a cash-flow budget listing with fixed versus variable costs
Fixed costs will generally keep the doors open and must be paid. Create a list of priorities about which ones are most important and try to set money aside based on the timing of when they are due.
Identify ways to cut back
The time for a cleanse is now. Dig into your ongoing expenses, and identify the ones you can eliminate. You want to understand what the fixed costs you can’t avoid are, things like rent. Although it’s difficult, you need to go through all your expenses and rank them in order of what you can cut first and what you’d like to avoid.
Let’s begin with small wins. Start by examining any regular expenses that you can cut back on. Not going into the office means savings on fuel, ten or twenty take-out coffees a week, and reduced eating-out expenses. Add up all the expenses you have saved on by not going out – the number will be in the 1000’s of Dirhams.
Plan for every outcome
There is a best-case scenario, a worst-case scenario, and everything that falls in between. You cannot avoid the outcome, but you can prepare yourself for it. Run various scenarios through your cash flow projections. Revenue will take a big hit during this time. Payments will be slower than usual. Cash inflows will become a burden. At this moment, we cannot predict when this pandemic will end. As such, if you have devised a protocol for all possible outcomes, you’ll be ready to let it take motion when the time comes.
Review your debt As uncertainty grows, so will the inquiries on debt settlement. Identify your current cash position, run through the numbers, and create a payment plan. At times like this, it is essential to maintain a cash flow balance. Do not pay out more than what comes in. Pay once you get paid. It may seem plausible to clear your debt today. However, it may not be the best decision right now. Also, do not hesitate to reach out and ask for an extension. Everyone is in the same position as you are. We will all get through this together.
You cannot have a business without cash outflows. A well-balanced cash flow maintains an equal and controlled level of cash inflows and outflows. Engage in new payment options to encourage cash flow. Offer early payment cashback if possible. Survival is the key element here.
Debtors management. Request up-front payments
Now is not the time to let your debtors off the hook, so contact your clients and customers to encourage them to pay early. You can incentivize them by offering discounts, within reason.
Where customers themselves are experiencing cash flow difficulties, you might consider negotiating periodic payments. You’ll just want to make sure they’re enforced.
When you approach customers about money that’s owed to you, be as empathetic as you can. Remember, when we do eventually come out of this crisis — which we will — the same customers you’re approaching now will probably be there in the future.
You have costs you have to keep paying and it’s completely reasonable to ask your customers to demonstrate their faith in you by invoicing in advance and collecting deposits. Ask your debtors not to give you cheques but to rather do online transfers. Ensure that you can receive online payments and credit card payments – make it easy for people to pay you.
Find new sources of revenue
A change in the way businesses operate is not necessarily a bad thing. It opens the doors to a new opportunity. Ask yourself: “How can I operate a business and offer customers our services in this new business lifestyle?” Adapting to the changes in the economy is how businesses make it through difficult times. It is a new opportunity for your business to evolve in a new, unfamiliar market.
Adjust your cash-flow plan
Circumstances are changing rapidly so you need to be ready to adjust your plans on a daily basis. Make sure you are speaking to your customers, suppliers and employees regularly. Relationships can be strengthened during difficult times and an open dialogue will help others understand the conflicts you are managing and provide avenues of support.
Timely financial reporting
Ensure that your financials are kept up-to-date so that you monitor profitability, overheads, stock levels, and debtors and creditors balances on a timely basis.
Make the Most of Current Customers
We’ve all heard the old adage that a bird in the hand is worth two in the bush. The bird in the hand is your customer or client, and they’re an opportunity to make more sales without incurring the costs of finding new customers.
Offer them special rates to get through this. Be by their side, and maintain the relationship. After all, loyalty is the best investment a business can have. It protects future income and influences new ones.
These are the times to protect our financial position. Take every measure possible. At the end of the day, there is no definite way for a business to protect itself from financial difficulties, but it all boils down to making smart decisions early on.
Upskill your staff
Wherever possible, try your best to keep your staff– they rely on you, and if you have managed a good team, they should be supporting you. You could train your existing staff on additional skills, which could make them more productive and efficient, rather than hiring more staff. There’s plenty of online courses that are very affordable, and these will allow them to focus on other areas of the business when their department is down- for instance, your sales team could perhaps also help out the marketing team.
Remember, your employees can be one of your greatest assets, and if you cut too deep, you may not get them back.
Be charitable, show humanity and note what you are learning from this
We are all learning a lot about how we could have better prepared for this disaster. Use this time as a wake-up call and learn from this experience. Start taking notes and don’t return to the status quo when this is all over.
Adapt and diversify
While it’s irrefutable that these are trying times, small businesses should challenge themselves to think creatively about how they can make adjustments to their business to adapt to the current climate. For example, a restaurant owner can consider delivery if they don’t already offer it or think of ways to make their delivery option more enticing, such as a discount, fee-less ordering or coupons for future use. Service providers may consider remote tools like teleconferencing to interact with customers rather than in-person meetings. Manufacturers should seek out local suppliers. Costs may rise, but it’s better than the alternative of inventory drying up altogether.
Review Inventory Management
See if anything can be done to reduce your inventory costs without sacrificing the quality of goods sold or inconveniencing your customers. Maybe you’re ordering too many of particular items, or something can be sourced somewhere else at a better price.
Is there a drop-shipping alternative that will work for you so you can eliminate shipping and warehousing costs? Just because you’ve always ordered something from a particular supplier or done things in a particular way doesn’t mean that you have to keep doing things that way, especially when other ways can save you money.
Conclusion on managing cash flow
Managing cash flow effectively is vital for every business at any time but for SMEs, during times of uncertainty and volatility, it’s particularly important. If you would like to discuss any of the above or have other queries about how you can make the right decisions for the future of your business and your income, please contact us.
And finally, as a small business owner you should find some comfort in knowing that in being small, you have the advantage of being more nimble and agile, which allows you to adapt more quickly than larger companies. By prioritizing health, cash flow and thinking quickly and creatively about business model adjustments, small businesses can better position themselves to weather any uncertain time. And the time to start is now. After all, the secret to getting ahead is getting started.