UAE firms told not to obtain short-term financing for long-term projects
The firms must have certain buffers in place for long-term financial resilience.
Companies are tempted to obtain short-term financing but they should not fund long-term projects with short-term financing, according to a senior industry executive from the hospitality industry.
"Always ensure that you don't fund long-term projects with short-term financing. This is the first mantra. If your asset cash flows are properly matched, you will not fall in trouble in the life-cycle of the asset. We get tempted and take short-term borrowing because they are easy to obtain. I would always advocate against it," said Sanjeev Agarwala, assistant group managing director at Al Habtoor Group.
While speaking at the virtual "New Age Finance and Accounting Summit" organised by Khaleej Times, he said the firms must have certain buffers in place for long-term financial resilience.
"Project well-planned from the initial stages ensure a that lot of troubles are eliminated as we go forward. You must have a solid feasibility and understanding that the business is viable and there is a sufficient demand for it. Moreover, you have advantages over your competitors. These are simple matters but financial matters require a sense of discipline and planning. We tend to ignore that in haste and when we make haste, we make waste," said the hospitality industry veteran.
Agarwala noted that the firms are strained about cash flows and but if they have right buffers and reserves, they can pass through difficult times such as the coronavirus pandemic.
In addition, he added that firms must ensure their assets are producing revenues from all the resources. "Every income stream is properly accounted for and operationally looked after. That is where the fine line comes in between a successful CFO and having a right operational knowledge," he added. - email@example.com
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