Dubai: By launching alternative revenue streams, evaluating finances to manage cash flow, injecting personal funds into their businesses and negotiating payment terms with partners, UAE-based small and medium-sized enterprises (SMEs) undertook several measures to stay afloat during the pandemic.
Financial challenges forced most companies to implement certain drastic changes to their strategy and in the way they worked, said Dr. Christiane Schloderer, CEO of Dubai-based business consulting firm Growth Partners. “Having worked with a mix of companies, we saw that some had troubles, most went by just okay while a few thrived well due to the shift towards digital. We only had one early-stage company that might shut down.”
A key challenge for SMEs was managing cash flow. Uncertainties caused by the pandemic made the situation more complex as businesses were often not able to plan in advance and needed shorter and more frequent planning cycles. Sudden disruptions and an uncertain financial situation forced many SMEs to reduce overheads (ongoing expense of operating a business) and even offload certain parts of the business. However, despite challenges a section of SMEs thrived by pivoting quickly.
Alternate revenue streams paved a growth path
UAE-based home-grown brand specialising in natural skincare products The Camel Soap Factory lost 90 per cent of its revenues overnight. “We saw the ominous signs as soon as tourists from Asia started thinning from the beginning of February, even before the pandemic hit our region,” recounted founder and CEO, Stevi Lowmass. “We had to plan immediately to manage cash flow and protect the business, which prior to the pandemic was heavily reliant on the tourist population as our ‘made in the UAE’ handmade soaps using camel milk are perfect for gifting.”
As immediate measures, Lowmass injected personal funds into the business, coupled with some cash reserve built over the years. Private shareholders also lent support. “We received support from our landlord Dubai Silicon Oasis through restructured rent payment options. For instance, cheques that were due in April 2020 could be paid by year-end. This enormously helped in managing our cash flow situation, giving us some breathing space.”
Importantly, Lowmass felt the urgency to pivot quickly to create new revenue streams for the business to survive. By leveraging its manufacturing unit, The Camel Soap Factory started contract manufacturing personal care products for private labels, growing from a tiny base by 400 per cent. In September 2020, the brand launched a direct-to-consumer business model with a new e-commerce platform called Natural Skin Rescue. The e-commerce platform accounted for 30-40 per cent of its total business in 2020 itself, which is expected to touch 50 per cent in the short term.
In addition, by developing a new range of soaps geared towards the local market now available in Carrefour, the brand has moved into the FMCG space. Finally, The Camel Soap Factory has started exporting as well. A range of its products will soon be available on the Chinese online platform Tmall, Lowmass shared.
Business Continuity Tip #1: Think about creating new revenue streams to ensure longevity of a business. As the pandemic shook The Camel Soap Factory out of its comfort zone, the brand created three additional revenue streams by using its existing facility, excess stock and by moving into the digital space.
Managing cash flow was a priority
UAE-based marketing consultancy firm Yardstick Marketing Management lost almost 80 per cent of its business as the pandemic hit the region. Pre-pandemic, the business was performing well but the situation deteriorated rapidly in 2020, since Yardstick has major clients from impacted sectors such as travel and retail.
“We survived due to our diligent cash flow management over the years. Thankfully, we did not have to make anyone redundant, although we had to accept salary reduction to keep the business running,” said Anishkaa Gehani, founder and CEO of Yardstick Marketing, which employs eight people.
As loss of business was looming large, Gehani audited the financial situation carefully. From negotiating reduction of office rent to curbing utility expenses such as telecom bills, she managed to reduce both expense heads by 40 per cent and 50 per cent, respectively. This helped in preserving cash to protect the business.
Then the firm renegotiated payment terms of receivables from clients, especially those who were deeply impacted by the pandemic. For instance, Yardstick has clients on 12-month and 6-month payment plans. Under normal circumstances, this would help the company to gauge cash flow and plan accordingly. But the pandemic disrupted such advance financial planning.
“In order to manage cash flow, we mutually agreed with clients on staggered payment plans to ensure both parties could financially stay afloat. For example, one of our heavily impacted clients could not make any payments in 2020, but within the first three months of 2021 we received the full outstanding amount from the previous year,” Gehani shared. “Similarly, we had to create staggered payment plans spread over 3 to 6 months for payables due to our suppliers offering printing, courier and IT services, among others.”
Business Continuity Tip #2: Small but consistent saving is crucial. Since the past 17 years, Gehani has been saving a fixed amount every month in a disciplined manner. At a certain point, she was saving almost 50 per cent of her monthly earnings, now reduced to around 10 per cent. By saving diligently, she has been able to re-invest in her business that helped during the pandemic, while also investing in assets and creating funds for her children’s education.
Reducing overheads became unavoidable
Beginning of 2020 business was upbeat for Dubai-based Wood Zone Technical Works LLC that specialises in creating exhibition stands, sets for events and interior fitouts. The company had a lot of projects in the pipeline with Expo still around the corner at that time. But as the pandemic hit the region, what followed was crisis of an unprecedented scale, and Wood Zone lost almost 40 per cent of its revenues. As exhibition and event side of the business completely dried up, the company had to reduce its overheads.
“Unfortunately, we had to let some of our people go, which is a hard decision for any business,” said managing partner, Vandana H. “Along with salaries, other annual employee-related costs include visa, health insurance, accommodation and transportation. In January 2020, eight new people joined us as several projects were supposed to kick-off in the first quarter. But by March, the situation changed completely as most projects were cancelled or placed on hold. We had to take certain quick decisions to reduce recurring costs. While we needed some people to deliver projects if they materialised, as an SME we could not afford to keep too many employees on the standby. We had an open conversation with our employees, giving them the option to avail their annual leaves. We were surprised to see that over 25 per cent from our 50-member team pre-pandemic, were keen to go back to their home countries to be with families, ahead of the lockdown. This helped us to significantly reduce overheads.”
As additional measures to keep the business afloat, Vandana had to pull in personal funds. She also acknowledged receiving support from certain government entities. Wood Zone’s commercial landlord, Wasl Properties offered three months’ rent reduction in 2020 and the same for 2021 on renewal. Dubai Electricity and Water Authority (Dewa) bills were roughly reduced by 10 per cent in 2020. There was around 20 per cent fee reduction on license renewal too.
Slowly but steadily business has started picking up for Wood Zone from November 2020. Since February-March 2021, projects in the pipeline are being confirmed and in some cases work is underway.
Business Continuity Tip #3: Having a diversified business, even if it is small, is important. While Wood Zone specialises in creating fitouts for exhibitions and events, the company survived the pandemic due to its interiors vertical, which was the only revenue stream in 2020 accounting for 85 per cent of the business.
How can SMEs effectively manage cash flow?
The pandemic reinforced how crucial it is for SMEs to understand and regularly monitor the way money flows in and out of the business.
The first step for effective cash flow management is to have a detailed level of transparency about future cash flows, Schloderer recommended. And that requires:
• A good financial system, where data is structured in a way that helps cash planning outlining due dates, logical account structures, regular updates and so on.
• A detailed financial plan that is updated regularly, at least monthly. If cash is tight, the financial plan should be updated weekly or even daily.
• A responsible person who owns the cash flow and knows what is coming. This is usually not the accountant or bookkeeper, but someone who is close to the business and understands situations such as if customers pay late or if a supplier is in trouble and needs an urgent payment to avoid delivery shortfalls.