What Jordan’s SMEs are doing to safeguard losses during COVID-19
From reducing strategic costs to seeking rent relief, small companies are scrambling to remain afloat during a period that has seen business contracting due to lockdowns.
SMEs in Jordan are taking prudent measures to sustain their businesses after the COVID-19 lockdown. While many have started to defer payments and seek financial assistance, others are cutting costs in areas that will not impact operations.
For Tareq Zoumot, founder of Shivoo, Jordan’s first beverage catering and consultancy service, mitigating the negative impact of the crisis meant having a dialog with landlords and downsizing storage space. The company’s business model has also helped it cope with the situation.
“Luckily, for us at Shivoo, when it comes to keeping up with salaries, which some would say has been the toughest deliverable during the pandemic, we were spared, as our business model runs on per-job payments, and is mainly made up of parttime employees,” Zoumot said.
“However, when it comes to things like storage areas and rental units, we tried to minimize the space we are consuming, and we spoke to landlords to give rent discounts until we all get through this rough patch together.”
Although the company did not incur financial losses, it lost potential revenue due to the restrictions on large gatherings and cancellation of events.
“In general, we were safe in terms of direct losses to the business, although we did lose a lot of the future money coming in due to event cancellations. All we can do is hope for the best and remain optimistic that when the world goes back to its normal self, we as a hospitality industry are prepared and can get back on our feet again and move forward, stronger than ever,” said Zoumot.
TESTING TIMES
The coronavirus pandemic has had a substantial impact on Jordan’s SME sector. A survey of 290 SMEs in the country found that 94% have completely shut down, 4% have continued with limited capabilities, and only 2% have seen no impact.
The study was carried out by global market IPSOS in collaboration with Amman-based corporate data mining company Kinz, and the findings were published in May 2020.
“These days aren’t easy for anyone, let alone startups. But most successful startups need to really bootstrap, at least for the first few months,” said Marwan Juma, Founder and Chairman of Kinz.jo, Jordan’s biggest data-mining firm, and Dot.jo, a web application provider.
“The concern is that this pandemic drags on, with companies postponing buying decisions, and investors going into a longer holding pattern too. This will be a true test for startups with a real value proposition to see if they can close deals,” said Juma, who previously served as Jordan’s Minister of Information and Communications Technology.
The travel and hospitality industries have been two of hardest hit sectors during this pandemic, with many businesses forced to close their doors for good, and the rest struggling to remain afloat. Nearly 72% of tourism and hospitality SMEs interviewed in the IPSOS study said they needed tax relief measures from the government, and 73% said they needed rent relief.
Despite high levels of concern over their ability to survive the crisis, Jordanian SMEs have been putting off measures that affect employees, with the vast majority wanting to protect the livelihoods of their staff and as such, postponing layoffs and salary reductions.
“As any business during this pandemic, we were faced with the threat of declining revenues and cashflow issues. We knew we had to rethink our strategy. It was key for us to keep all our staff and not lower their salaries,” said Yara Zreikat, co-founder of AmwalCom, the first comparison website for bank products in Jordan, enabling people to compare loans, credit cards, and bank accounts.
“We had to reduce our marketing budget and trim our expenses. On the other hand, we have studied the new regulations set by the Central Bank of Jordan during the pandemic to present it to the community in an interesting and an easy to understand way,” said the Jordanian entrepreneur.
WHAT THE EXPERTS SAY
To weather this challenging period, entrepreneurs should eliminate all non-strategic expenses, and if the situation is dire, they can look to lower variable strategic costs.
“Going forward, it’s advisable to keep most costs as strategic variable costs to allow for modification if the need arises again,” said Reem Goussous, Managing Director of Endeavor Jordan, an organization that identifies and supports highimpact entrepreneurs and helps them to scale.
Exploring debt financing can also be a solid option if there are favorable schemes in place, such as longer grace periods and payment terms, and low interest rates.
“Entrepreneurs should talk to their banks and work on restructuring their debt because cheaper funding gives the opportunity to build more favorable cost structures,” said Goussous.
“What’s important at the end is that while entrepreneurs structure their costs today, they don’t end up creating long-term damage that could jeopardize their ability to grow their revenues in the future. Improving margins and efficiency is key,” she said.
Jumana Twal Hinnawi, CEO and Founder of Bidaya Marketing Communications, Jordan’s largest public relations agency, advises SMEs to reduce costs by unburdening their budget of unnecessary overheads.
“However, caution must be taken when deciding on which expenses to reduce, as you cannot relieve the company of valuable assets that keep it up and running and whose absence may hurt opportunities for growth and expansion.”
It is also crucial for SMEs to communicate and voice their concerns, said Hinnawi.
“In times of economic downturn, such as the one we are dealing with today, share the burden — with your clients, vendors, and staff. For the most part, people’s natural disposition is to work towards the greater good. You may be surprised what people are capable of accommodating.”
