The use of words and phrases like “pandemic,” “the new norm,” “asymptomatic,” and “quarantine,” which were formerly used in our public discourse infrequently – if ever – has become as commonplace as discussing the weather today.
Due to the devastating impact that businesses with drained liquid assets have recognized over the past two and a half years, the terms “business rescue” and “liquidation” are unfortunately being used much more frequently than they once were. It would appear that small businesses are evaluating their financial situations too late, as a result of an increase of 44.8% in business liquidations (Stats SA) and a decrease in the number of companies reported to have initiated into Business Rescue. This is when they are no longer able to keep the doors open.
Small businesses in South Africa are responsible for approximately 34% of the country’s GDP and employ between 50 and 60% of the country’s workforce.
According to Karl Smith, Senior Manager of Education, Training, and Member Support at the South African Institute of Professional Accountants (SAIPA), there is a new potential market and a duty for Professional Accountants (SA) to provide consulting assistance to help small businesses in remaining on track and financially stable.
“Professionals in the field of accounting are instructed to use their best judgment, to engage in critical thinking, and to have a profound comprehension of complicated, multi-faceted operations and the financial repercussions that result from them.” According to Smith, “they are ideally suited to assist small business owners and entrepreneurs in identifying their strengths, weaknesses, opportunities, and threats, and developing a plan to address them.”
Smith offers four suggestions for regaining financial stability amidst the challenging economic climate that we are currently experiencing.
Examine the Current Financial Situation of the Business
The pandemic may have made existing financial difficulties for a company even more difficult to manage. These difficulties may have taken the form of issues with cash flow or a decrease in business activity brought on by shifts in the trade cycle or wider economic pressure.
To determine whether or not the company had any pre-existing circumstances that are not linked to the pandemic but that might have been covered up because of it, a professional consultant should assist in the determination of this fact. When a clear picture of the current state of the business has been established, the owner and the advisor can begin looking into ways to stabilize the performance of the business.
Establish a Recovery Plan
The ability of a small business to effectively manage its cash flow can be a determining factor in whether or not the company will survive and thrive. Cash offers a number of benefits, including liquidity, the ability to negotiate, a security reserve, and hedging potential losses, despite the fact that during periods of inflationary pressure, cash may lose value. After conducting an analysis of the company’s current financial situation and its long-term goals, accounting professionals are in a position to provide useful guidance on a variety of topics, including how to stay afloat in the face of a shortfall in capital requirements, how to identify areas in which costs could be reduced to increase cash flow and similar topics.
Advisors are better able to determine what the best next steps are for a company when they have a solid understanding of the company and how it runs, in addition to being familiar with the company’s financial strategy. Even though they are the ones who know their businesses best, the owners of small businesses don’t always deal with the complexities of things like taxes and debt relief on a daily basis. Restoring stability can be aided by forming a partnership with a consultant who has a more in-depth understanding of these processes and who can offer advice.
Discuss the Medium to Long-term Vision
The vast majority of us have the impression that the pandemic has altered our world in some fundamental way, but we do not know for certain which of these alterations will be long-lasting and which will be temporary. SMEs can begin to evaluate which trends have had a beneficial or detrimental effect on their company and what methods can be implemented to optimize the positive changes by collaborating with professional advisors and initiating a review of these trends and strategies.
Now is the time for business owners to look for and capitalize on the opportunities that are being created as a result of the recovery. This includes undertaking an after-action review in order to gather information and insights on lessons learned, and then using these to reprioritize actions to relook at marketing strategies, improve business value today, and build strategic resilience for the future.
If you take these steps now, your small business will be in a good position to capitalize more effectively on the opportunities that are emerging, and it will also be in a good position to continue winning in its markets with greater certainty and stabilization return.