It would be quite fair to say that the year 2024 so far has lived under the long shadow of events starting from 2020 to 2023. While the after-effects of the coronavirus pandemic are beginning to wear off now – even as the effects of the ultra-loose monetary response to the Covid-19 shock to the world economy will continue to be felt for years to come – the world, and our region especially, is reeling from more traditional shocks, including regional conflict, instability and, over the past few weeks, erratic weather.

Businesses in the UAE are also slowly waking up to the reality of the ongoing implementation of the UAE Corporate Tax regime, with the first corporate tax returns waiting to be submitted by February 28, 2025. For most businesses, whose accounting period ends on December 31, their first accounting period for consideration for corporate tax will be the twelve-month period from January 1, 2024 through to December 31, 2024, with corporate tax returns due for submission and payment by September 30, 2025.

What has been remarkable about the overall picture in the wind of such tremendous changes and turbulence is the continued resilience of so much of the constituents of the world economy, which has contributed to a picture of overall growth and stability despite clear downside risks. At least from a psychological point of view, this means that it is not all doom-and-gloom. For all the troubles facing the world at present, it seems the apt response now is that of the stoic: “This too shall pass”.

I have been CFO-ing for a few of my non-audit clients over the past three years or so, which has offered me an opportunity to take my gloves off from my usual chops as an external auditor and financial consultant and to get my knuckles down with the challenges facing small and medium businesses on an ongoing basis. This is not easy, not just for me, but even for masters of the consulting profession, such as CK Prahalad (deceased), former professor at the Harvard Business School, who coined the well-known business concept of “core competences”, who was the go-to guy for corporate advice for Fortune 500 businesses, but who himself failed in business on three separate occasions!

The main business challenge for CFOs in the UAE seems to be deceptively simple – to ensure that there is money in the bank when it is needed. If I were to put this in more ephemeral terms, I would put it down as this – peace of mind.

And at times of heightened business turbulence, having adequate cash reserves at bank becomes that much more of a priority. To this end, we have to keep track of our customer receipts inwards, of vendor payments outwards, of salary and benefit commitments, as well as payments towards growth expenditure.

Over the course of my career as an external auditor in the GCC region, I have often been left perplexed by the number of long-established businesses whose cash at bank reserves are not enough to cover 4-6 months of payroll. For businesses which are at a younger stage of development, this is even more difficult, even as they oftentimes benefit from the largesse of beneficent start-up stage financing. In my capacity as an external consultant, I often get into arguments with management as to the fragile nature of their cash positions, and the subsequent need to plan outflows not just on the back of an envelope, but to plan outflows in a formalised, budgeted manner. A guilty pleasure of mine has been to peruse the commerce sections of Arabic newspapers of record to look for details of businesses that have gone under, in particular looking at the position of their outstanding creditors when they declared bankruptcy. Call me a grave-digger, if you will, but there is such a thing as a business autopsy, and we learn as much, if not more, from reading about the failure of businesses as much as we do from reading about their success.

The reader will be surprised to know that of the number of businesses with turnovers greater than even AED 30 million – if not greater still – the budgetary process is not much more than a hope and a prayer. Far too many giants in business have become dinosaurs because of this for it to be a completely unheard of proposition.

One of the unintended benefits of the incoming corporate tax regime is that it will force a number of businesses, especially in the small and medium sector, to finally create annual financial statements that conform to international standards of accounting and financial presentation, which means that for perhaps the first time in their commercial life, a number of businesses will see their annual “report card”. Wholly unintentionally, this increased formality in business reporting may nudge business owners and management towards more financially sustainable decisions, and towards long-term thinking. We may thereby see more conservative business decisions, a tightening of credit terms and possibly more flexible but assured debt settlement schemes driven by market forces. It may not be helpful to be needlessly punitive in what already is a considerably free market to conduct transactions, but the introduction of corporate taxes and an annual requirement to record and file returns may incentivise more structured business decision-making.

Due to recent politically induced turbulence in the region, it is clear that the cost of business has increased on multiple fronts. In particular, cost of freight and transport has increased due to the ongoing conflict in Gaza and Yemen, with both ends of the Red Sea under threat of disruption. The isolation of Iran may increase in the coming few months, and the effects of the Russia-Ukraine conflict is being felt in more ways by regional players in the MENA region than one can comprehend. Even the IMF estimates economic growth in the MENA region overall to be a subdued 2.7% in 2024, followed by an improvement to 4.2% in 2025, assuming the conflicts disturbing the region are resolved by that time.

None of this can serve as an excuse for individual businesses in the UAE, and their management, to not lend adequate consideration to the survival and growth of their business, to take it through these turbulent times. It begins with simple things: Clearly defining the goals of the business, mapping out the cash flow for a period of at least 24 months, laying adequate buffers for the tough times and operating with adequate cash reserves. At times, maintaining adequate cash can itself become the critical limiting factor around which all other decisions are structured.

Thinking about cash and budgeting is in many ways like thinking about passing through a storm. While it may be initially frightening and exhilarating, the fact that we are lending serious consideration to navigating the storm at all is in itself a clear indication of our hope for a better future. Let us see our businesses through the turbulent times; let us take those simple steps and see it through.