2020 challenges for business owners:
- Poor economic climate in SA
- Covid-19 crisis
- Eskom impact
- Cash flow pressure
- Creditor pressure
- Fear of a further downturn in business and its consequences
- Further downgrade of the SA economy
One of the consequences of the lockdown that companies and close corporations (“companies”) will face is the negative impact on their cash flow and the threat to the business’s survival. Various factors can contribute to the failure of a company, e.g. decline in demand, hike in expenses, poor management, labour actions, consumer behaviour, technology, etc. The fact that the lockdown was followed by a downgrading probably means that you find yourself in the centre of a perfect storm.
- Be honest with yourself, your staff, landlord, suppliers and the bank
- Talk to them and negotiate payment holidays and rescheduled payments
- Analyse your business expenses line-by-line and be brutal in cutting costs
- Talk to debtors, tenants and other clients – make arrangements to recover as much as possible – add pressure but be lenient enough to avoid ending up with nothing
- Do regular cash flow analysis together with a six-month forecast – prioritise payments
- Amend your budget accordingly
- Review your written strategy and implement it
- Identify and seize opportunities to adapt your business model or generate new income streams
- Ask for professional help
- Apply for assistance from the various funds created
- Allow negative emotions to cloud clear thinking and honest analyses
- Go into hiding
- Wait until it is too late to ask for professional help
- Think you have done everything possible – look and look again!
- Mortgage your house for the debt of your company
- Dump your hard-earned savings into a failing company – pride and loyalty are not good enough reasons for personal assets to get lost in a failing company
- Hide from your creditors – also do not overcommit to them or commit to what you know is impossible
If the efforts above do not yield the required results, the company may be ailing or dying and something else needs to happen:
The company is financially distressed or insolvent in the following circumstances:
- If it appears reasonably unlikely that the company will be able to pay all of its debts as they become due and payable within the immediately ensuing six months; or
- If it appears to be reasonably likely that the company will become insolvent within the immediately ensuing six months business rescue or liquidation becomes your only options.
6 KEY ELEMENTS TO ASSESS IN YOUR STRATEGY POST-LOCKDOWN
- Identify and be part of a changed environment – be willing to find the opportunities within a changed environment
- Sales/Income volume impact
- What is the impact on sales volumes and demand?
- What are the implications with regards to cash collection?
- How can your product offering be adapted to changing needs and economic environment?
- Consider different scenarios.
- Human resources
- Identify key people
- Devise strategies to reduce unnecessary resources
- Become lean and mean
- Vital links in your value chain
- Is there reliance on key suppliers who are likely to be disrupted, resulting in significant delays to delivery?
- How have they been affected and what are their strategies?
- Will the needs of key customers/consumers be met? If not, how can this be achieved?
- Are there restrictions on the use of facilities, and can your business model be adapted?
- Is it possible to carry out business functions remotely, such as payroll, finance or IT?
- Consider/review all risk areas of your business – IT, Insurance, Contracts
and regulatory obligations
- Is there a danger of not meeting major contractual agreements and/or regulatory requirements?
- Consider business rescue proceedings or informal turnaround/restructuring as a means to account for financial and/or operational strains and engage professional advisors in this regard as soon as possible.