finance

COVID-19 business finance futureca

The future of business finance

USB News

The future of business finance

COVID-19 business finance futureca
(Source: Pexels.com)

  • MAY 18
  • Tags COVID-19, coronavirus, pandemic, lockdown, business, finance, entrepreneurs, SMMEs, South Africa

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Traditional models of business funding need a re-think if South Africa’s small businesses and entrepreneurs are to emerge from the financially crippling “winter of coronavirus” into a spring of growth and rejuvenation.

Accepting that downturns, recessions and economic crises are inevitable, one needs to shift the focus into building “Zebra” companies – sustainable businesses with steady growth, strong balance sheets and cash flows, and able to withstand downturns – rather than “Unicorns that will die without the next round of funding”, says University of Stellenbosch Business School (USB) Senior Extraordinary Lecturer, Daniel Strauss.

We will be forced to combine the profitability and cashflow of traditional businesses with the growth strategies of start-ups.

“In the past we had a mindset of ‘or’ – we either had a traditional SMME that was funded through debt or we had a start-up that was funded through equity. Each of these types of funding proved to be effective where applicable and we know how they work, but the time has come to consider an ‘and’ mindset.

“We will be forced to combine the profitability and cashflow of traditional businesses with the growth strategies of start-ups. This will change the way in which entrepreneurs think, operate and grow forever,” he said.

This will change the way in which entrepreneurs think, operate and grow forever.

Strauss proposes a future of business finance that is a peer-to-peer network of like-minded entrepreneurs who invest and support one another within the same frame of reference.

He said groups of entrepreneurs who had been buying equity in each other’s businesses for years were the ones to emerge stronger from every financial crisis, able to pick up additional revenue from weaker competitors once the storm has passed.”

Entrepreneurs see opportunities and threats in a different light…

“Entrepreneurs think and operate differently. If they invest in your business you will benefit not only from funding but from a mindset that no banker can offer you. Entrepreneurs see opportunities and threats in a different light and once they have invested, they will become your partner to ensure that growth is a given, not a pipe dream.”

“If we are willing to change our mindsets around SME funding, we have a chance to withstand future downturns like the man who built his house upon the rock. There’s nothing wrong with South Africa that cannot be cured by what is right with South Africa,” he said.

He said most SMMEs will emerge from the COVID-19 crisis with severely weakened balance sheets, and “relief” funding in the form of bank loans might ease cashflow in the short-term but, until it is repaid, they will be more fragile than before.

“Entrepreneurs just don’t seem to catch a break. The dot-com bubble of the early 2000s, the global financial crisis of 2008, and the COVID-19 crisis of 2020 preceded by two technical recessions in as many years in South Africa.

We can expect a recession or economic crisis roughly once a decade and it is time to adapt or die.

“It is time to realise and concede that macro-economic turmoil is and will be a part of our lives going forward. We can expect a recession or economic crisis roughly once a decade and it is time to adapt or die,” he said.

Entrepreneurs’ ability to approach a local bank manager for a business loan changed significantly after the 2008 financial crisis, he said, when regulations on capital requirements “rendered banks virtually handcuffed and incapable to provide the capital necessary to grow your SMME”.

While small businesses became too risky for bankers’ mandates, on the other side of the spectrum, venture capital firms could provide equity funding to entrepreneurs with high-growth ambitions for their businesses.

“But what about the SMME owner who wants to build a sustainable business with a steady growth trajectory but has reached the limit of the amount of surety and security that they can provide to the bank for further funding?”

“It has become too risky to start a company with a bank loan and bootstrapping in the hope of building a foundation fast and strong enough to withstand the next downturn. Recessions are going to occur, there is no denying this, and the more debt you have, the less likely you are to recover before the next wave hits. It’s nearly impossible to grow whilst drowning in debt,” Strauss said.

Coming out of the winter of the COVID-19 pandemic, SMMEs can experience the “growth, rebirth and rejuvenation of spring” if they are willing to change their thinking on funding, he said.

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#WTFuture: Post-COVID-19 possible futures in Africa

USB News

#WTFuture: Post-COVID-19 possible futures in Africa

  • APR 22
  • Tags COVID-19, coronavirus, pandemic, futures, Africa, business, technology, disasters, entrepreneurship, opportunities, foresight, strategic thinking

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Even if COVID-19 is soon eradicated, will it ever be business as usual again on the African continent? Earlier this month (April) we hosted our first online USB Leader’s Angle where speakers Dr Njeri Mwagiru, Senior Futurist at the Institute for Futures Research (IFR), and Dr Lize Barclay, senior lecturer in Futures Studies and Systems Thinking at USB, navigated the uncertainty of post-COVID-19 futures in Africa.

>> Click here for the full recording

COVID-19 and Disasters: Africa’s Preparedness and Resilience

COVID-19 is a public health crisis facing the whole world with multiple challenges. How is Africa positioned in terms of preparedness to respond, and resilience to disasters such as COVID-19?

Dr Mwagiru says it is necessary to apply strategic foresight to respond to disasters like COVID-19 in the best ways possible thinking about alternative futures. “I want to frame it around concepts of disaster risk management.

“COVID-19 is a global disaster – a public health pandemic – and it is not the only disaster we are currently facing. We are facing multiple disasters, like climate change as well,” she says.

She says COVID-19 offers an opportunity to think about Africa’s preparedness and resilience in a broader context as well. “Prior to the disaster we are all quite familiar with the statistics around the continent. We have low human development index performances, we have a low per capita income, our infrastructure development is not up to scratch and we have a high disease burden. We already have multiple challenges so I think COVID-19 also offers an opportunity to think about our preparedness and resilience in terms of that,” she says.

“It is an opportunity to respond to band aid solutions to this particular crisis as one possible situation amongst many but it is also perhaps an opportunity for meaningful and deeply rooted change and transformation so that we really begin to build our priorities,” Dr Mwagiru says.

Preparing for Disasters Using Technology: Gaming Simulation

What role can technology play in understanding and preparing for the future, in terms of disease and other potential disasters? Dr Barclay says gaming simulation plays a significant role and is important in terms of disaster and disaster readiness.

“Shakespeare wrote, All the world’s a stage, and all the men and women merely players. Now what gaming simulation does is, it sets a stage to rehearse possible futures,” she says.

“This is because systems have players, rules, golds and teams that can collaborate or compete. Gaming simulation provides the freedom to run your infinite scenarios so it plugs into those things we don’t always think about or want to think about. The ‘What if?’” she says.

COVID-19 and Insights for African Futures

What lessons are we learning amidst this pandemic that can provide insights to Africa’s futures?

Dr Mwagiru says: “We do have the tools, access and methods like foresight and futures thinking that can assist us to anticipate possible alternative futures and allow us to play a number of possibilities using for instance, scenario planning.

“Another lesson we are learning is the need for agility in our planning and this is very important to keep in mind going forward for organisations and communities. We’re beginning to see the agency of different axes. I think the COVID-19 pandemic has really shown the cooperation and collaboration possible at leadership level,” she says.

Opportunities for Tech Start-ups in Africa

What opportunities have been created for tech start-ups in Africa in dealing with the virus itself and the social and economic dimensions associated thereto?

“The technology start-ups, and not just medical technology, has been absolutely invigorated in many parts of Africa,” says Dr Barclay. “We’ve seen a strong growth in Rwanda, South Africa, Kenya, Nigeria and Morocco, the countries that were most impacted by COVID-19, but their tech eco system mobilised almost immediately.”

She also adds that a lot of mobile money platforms were taking off, even in very remote areas. “It’s specifically designed to work on a lower level or cheaper type of mobile phone with slower internet speed. We’ve also seen a growth in app development,” Dr Barclay says.

Focus on South Africa

In this video Prof André Roux, head of the Futures Studies programmes at USB, is in conversation with Doris Viljoen, senior Futurist at IFR, about what the possible short and medium term futures for South Africa could be.

Post-COVID-19 possible futures in Africa

>> Watch it now

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Life after lockdown: Survival of the fattest

USB News

Life after lockdown: Survival of the fattest

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  • APRIL 21
  • Tags COVID19, coronavirus, lock down, business, pandemic, markets, economy, government

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The coronavirus will lead to business failures, market consolidation and entrench incumbents with strong balance sheets. Should policymakers react?

South Africa’s state of national disaster, lockdown and regulations have restricted movement of people, curtailed the free market and blurred the lines between business, government and society, raising the question of how their roles and responsibilities might shift in a new, post-pandemic social contract.

University of Stellenbosch Business School (USB) visiting lecturer in Corporate Finance Brett Hamilton, said it was clear that the COVID-19 pandemic would lead to business failures, with the SA Reserve Bank estimating an additional 1 600 business insolvencies this year¹, while the “fattest” – those with the strongest cash reserves – would likely survive.

We find ourselves in one of the most uncertain periods of human history. It is blurring the lines between business, government and society.

“We find ourselves in one of the most uncertain periods of human history. It is blurring the lines between business, government and society. Policymakers are confronted with an unprecedented, and impossible, trade-off between public health and economic growth.

“Given the speed and uncertainty under which these complex decisions are made, we have seen unprecedented actions from governments, central banks and businesses. In many cases, governments have overstepped their usual political and ideological boundaries and business has somewhat embraced stakeholders over shareholders.

Fighting the spread of the coronavirus requires ‘big government’ and ‘business with a heart’ to work together.

“Fighting the spread of the coronavirus requires ‘big government’ and ‘business with a heart’ to work together – it may be expected and the right thing to do in a crisis, but the question is if these roles will remain after the pandemic,” he said.

Hamilton, a director at First River Capital, said cashflow was “the lifeblood of any organisation” but lockdown had severely restricted businesses’ ability to generate cash through operations, while accessing cash through debt or equity investment were limited in the current economic climate, and possibly unwise.

The latest downgrade by Moody’s of South Africa’s credit rating to sub-investment grade severely restricts the country’s access to debt and has seen a spike in the cost of debt, he said, noting that the South African 10-year government bond yield reached a maximum of 12.36% on 24 March compared with a low of 7.9% in 2018.

“So, debt may do more harm than good during these times, even with the debt relief pledges made by banks,” he said.

This leaves “Alpha companies” – large, mature and cash-flush – in prime position to “weather the storm, buy out their competitors and continue to invest for growth after the pandemic”, he said.

“Markets will become more concentrated and the position of incumbents more entrenched. The business world will look different after the pandemic and it will most likely fall on governments to regulate the new ‘Alphas’ to ensure better competition. If it should do so and how it should be achieved remains to be seen,” he said.

Hamilton said the shifting of roles brought about by the pandemic raised the question of the role of companies in the market: “Is it to ensure its own survival, by accumulating cash, or to stimulate growth at all costs? If companies decide to pursue stimulus over being conservative (retaining cash for rainy days), what responsibility then do governments have to support businesses that now have no further cash holdings due to operations being suspended by the pandemic and lockdown?”

During the pandemic we have seen many companies shift to a more socialist stance, offering free products, expertise and financial aid to their employees and to other virus-related efforts.

“During the pandemic we have seen many companies shift to a more socialist stance, offering free products, expertise and financial aid to their employees and to other virus-related efforts. Is this perhaps the dawn of a new social contract?”

Hamilton pointed to a 2017 report funded by the South Africa Department of Trade and Industry and published by the University of Johannesburg’s Centre for Competition, Regulation and Economic Development² which held that South African companies were accumulating reserves as opposed to investing it in the economy and, thus, stimulating economic growth.

The report noted that between 2005 and 2016, the cash reserves of the top 50 companies on the JSE increased from R242-billion to R1.4-trillion and called for policy intervention from government to stimulate domestic investment by these companies and put an end to the “investment strike”.

He said that while there were counter-arguments to this – that “cash hoarding” was a myth and merely a reflection of the business environment at the time³– if government policy had been used then to force South African companies to spend their cash holdings, fewer would now be in a position to weather the current storm.

“This could support the view for lower government involvement in business and the protection of the free market. That being said, government intervention during the pandemic has not only been welcomed by many, but in most cases has been expected. Similar to the financial crisis of 2008/9, governments have moved to act to protect the free market, but in many countries the interventions for the coronavirus have been more radical.

“Putting a freeze on the free market by way of lockdown is counter to the political and economic ideologies of many countries, but they have acted nonetheless,” he said.

Government intervention should also focus on the ability of the economy to recover after lockdown has lifted.

At the same time, he said, government intervention should also focus on the ability of the economy to recover after lockdown has lifted – “to ensure that enough businesses remain standing and that people are employed through the crisis to quicken the pace of recovery after the pandemic”.

“What is required is the ability for companies to maintain payroll, gain access to debt financing and for central banks to provide the latitude for banks to reschedule loans (possibly with forbearance through credit guarantees). For this, governments must pull out all stops in terms of fiscal action,” Hamilton said.

With South Africa’s “limited fiscal latitude”, external finance would be required and should be accessed from as many sources as possible, including bonds, accessing the capital market, as well as a reliance on development banks such as the IMF.


Sources

¹SA Reserve Bank. Monetary Policy Review. April 2020. https://www.resbank.co.za/Lists/News%20and%20Publications/Attachments/9839/Monetary%20Policy%20Review%20%E2%80%93%20April%202020.pdf

²CCRED. 2017. Companies hoarding R1.4-trillion in cash. CCRED article. 4 August 2017. https://www.competition.org.za/seminars/2017/8/4/companies-hoarding-r14-trillion-in-cash

³Tambo, O. & Theobold, S. 2017. The myth of corporate cash hoarding. Intellidex research report. September 2017. https://www.intellidex.co.za/wp-content/uploads/2017/09/The-Myth-of-Corporate-Cash-Hoarding-Final-Report.pdf

Brett Hamilton is a visiting faculty member at the University of Stellenbosch Business School (USB), where he teaches Corporate Finance and Decision Analysis (Managerial Statistics) in the MBA programme – as well as short-term classes for various academic institutions in South Africa and abroad.

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Life after lockdown

USB News

What does life after lockdown look like?

  • MAR 31
  • Tags COVID-19, Coronavirus, Lockdown, Economics, Corporate finance, Business, Development Finance, Industry, Investments, SARB, Moodys, EBITDA

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Guest lecturer in corporate and development finance at USB, Jason Hamilton, forecasts the covid-19 21-day nationwide lockdown will have on South African industry.  

The global COVID-19 pandemic has made its presence felt in South African retail and consumer-focused businesses, especially in tourism and hospitality, but the full impact on earnings, cash flow and employment will last far longer than a three-week lockdown.

With the 21-day nationwide lockdown in place, the full effects will now ripple through all sectors and industries at least until the end of this year – in an “economic cycle like no other we have ever seen”, says University of Stellenbosch Business School (USB) guest lecturer in corporate and development finance, Jason Hamilton.

Hamilton, a director at First River Capital, said with the South African economy already under severe pressure – the SA Reserve Bank (SARB) having revised its GDP forecast down to 0.2% for 2020 – it was expected that the impact of slowed-down global growth (expected to contract by 2.1%) due to the pandemic would see South Africa’s GDP retracting by between 2.5% to 3.5% with some models estimating up to 5%.

Moody’s downgrade of South Africa’s credit rating on Friday (27 March) would result in further outflows which the country can ill afford, he said, and the cost of debt would increase.

“Up to the lockdown businesses were able to trade and generate some earnings to keep the lights on, keeping employees employed and earning some level of income. A total lockdown will bring significant retrenchments across all sectors and industries, with cashflow and earnings under threat in businesses of all sizes.

A total lockdown will bring significant retrenchments across all sectors and industries, with cashflow and earnings under threat in businesses of all sizes.

“It is also looking likely that some form of control and restrictive measures will remain in place for months to come, which means we will be dealing with this until the end of the year – even if we look to China, which now has a flattening curve, they are more than five months into the battle against the disease while trying to keep their economy alive,” Hamilton said.

Data from the last 11 global recessions indicate that it takes on average a year-and-a-half for the economy to start recovering, but the current economic cycle is unlike any other.

“Recessions we have seen, and we have traded through them, and the average of 18 months to the start of recovery in theory gives us a timeline to follow. But the market sell-offs and economic cycle (reduced GDP growth or recession) we are busy entering is based on an event, not on fundamentals or underlying economic systems issues, which means it’s very difficult to predict how long and how impactful it will be.

“What we can, however, focus on is that it is event-driven and hence the recovery and comeback should be quick, the question is just when,” said Hamilton.

Interest rates – room to move

Unlike many developed economies where interest rates are already close to zero, Hamilton said it was a positive that the SARB still had “significant room to provide support of at least 300 basis points” even after the repo rate was lowered by 100 basis points, as the inflation outlook remains within the target midpoint.

“We have seen significant cuts in short succession from the economic powerhouses (US, UK, Germany, France etc) acting very quickly, which further supports the view that South Africa has further room and drastic action can and should be taken. The balancing act is, however, on inflation targeting and the exchange rate,” he said.

Access to liquidity will be key in the months ahead, he said, which would require direct action from government.

“Credit will need to be extended and/or restructured to individuals and companies to bridge cash flows as the trading environment tightens or, as in the case of a lockdown, grinds to a halt for many industries. This will require support from government, and the announcement by President Cyril Ramaphosa of the first phase of these is to be welcomed.”

…even if we look to China, which now has a flattening curve, they are more than five months into the battle against the disease while trying to keep their economy alive

Government & business support welcomed

Hamilton said the use of the tax system to assist firms with liquidity at the employee level by fast-tracking claims and reimbursements, and to delay up to 20% of PAYE for smaller businesses, was a positive move that would assist business – and recommended that further stimulus could come from deferment of VAT, provisional and income tax, and a higher percentage of PAYE deferred.

“The clear focus on SMEs and vulnerable sectors like the informal sector, with establishment of the independent Solidarity Fund, will support the public sector’s efforts and it is hoped that large businesses will follow the lead of the Rupert and Oppenheimer families which have allocated R1-billion each to the support initiatives,” he said.

Financiers (banks) have indicated their commitment to the national efforts and Hamilton said this would entail case-by-case restructuring of loans, likely through payment holidays or deferments to assist companies (and individuals) with three to six months’ grace to improve the underlying cash flows.

“This has been made slightly easier through relaxed regulatory requirements to free up head room from a capital holding point of view.

“Last week we saw the SARB taking further action to provide liquidity to the market through an active bond buying programme announced and increasing its refinancing operations to 3 months; and it’s likely that we will shortly see longer tenors on offer of 6 and 12 months,” Hamilton said.

Highlighting the knock-on effect of the economic challenges, he said further clarity would be needed in the real estate sector, as landlords would need the support of their funders or backers if they are to assist tenants with rent moratoriums.

The clear focus on SMEs and vulnerable sectors like the informal sector, with establishment of the independent Solidarity Fund, will support the public sector’s efforts…

Similarly, some firms might be able to approach their insurance companies with claims for loss of income, although this will in turn place the insurance companies under threat and likely facing liquidity concerns themselves.

National finances

With South Africa’s budget deficit projected to be just under 7% of GDP by 2021, the national finances are already under great pressure, Hamilton said.

Moody’s previously hinted towards giving South Africa time to recover, however any runway is now gone with the impact of the pandemic felt globally, and as such on Friday (27 March) they downgraded the country to below investment grade (Ba1) and maintained a negative outlook.

“A downgrade will result in further outflows which we don’t need right now, with foreign investors selling more than $41 billion in emerging market stocks and bonds since the beginning of the year, which is double that seen during the 2008 financial crisis,” Hamilton said.

There is slight reprieve, he said, in that the other ratings agencies have since 2017 rated South Africa as junk, which has seen investors price and treat the country as such since then, which has come through in the spreads of the credit default swap (CDS) markets.

“Although with this downgrade the debt cost will increase,” he said.

He said government remained in a difficult position with a projected 6.8% GDP deficit, about R370bn, to address, and “now also a stimulus package required to limit or soften the blow of the COVID-19 pandemic”.

“Moody’s in its statement reviewed this number up to 8.5% although in my view it will likely be at 10%, which means SA will over the medium term require much higher debt levels than previous modelled and for much longer,” Hamilton said.

Although economies around the globe have made available funds of between 1% to 4% of GDP, he said it was unlikely that South Africa would require the upper limit of such stimulus – “but this still implies a need of between R80 billion to R170 billion”. The UK and Germany have announced stimulus of at least 15% of GDP and the US 30%.

A downgrade will result in further outflows which we don’t need right now…

“The impact will be felt but most of these funds could be sourced from within the current budget through reallocation of non-essential or non-critical spending. Yes, there is an element of borrowing from the future in this strategy, but current circumstances require drastic action, this is also in line with what we are seeing globally.”

Economic sector outlook

Accommodation and travel booking cancellations are the “first wave” of the impact on the tourism sector, with effects now moving into the hospitality sector, such as restaurants, bars and coffee shops.

The manufacturing sector has seen some factories close and Hamilton said it was likely that many would retool to assist with the manufacturing of medical equipment.

“The agricultural sector is a key driver of the economy and very reliant on international trade. As they are in the food supply chain, they will maintain a level of trading although with all the markets globally also facing a recession or lockdown, luxury agricultural products will suffer while staple foods are set to show more resilience,” he said.

Consumer-focused businesses will remain attractive for investors, Hamilton predicts, with those that have adopted online strategies “likely to weather the storm successfully as they have managed to adapt or pivot quickly in the response to the crisis and are best placed for what might be a big shift in buying behaviour post the pandemic”.

The key growth driver has been the Business and Financial Services sector and as they are also positioned to service clients remotely, they are likely poised to be able to bounce back quickly.

“The only sectors that will not be affected, or suffer the least damage, will be the essential service providers, being the food suppliers, food and medical supply chains and medical support providers,” he said.

No sector is immune to the impact and fall out of the crisis and survival has a lot to do with cash reserves and low debt positions, hence firms with net debt to EBITDA of less than one and healthy pre crisis operating margins are best placed to navigate the next few months successfully.

No sector is immune to the impact and fall out of the crisis and survival has a lot to do with cash reserves and low debt positions,

Investors

“How investors will navigate this crisis from an investment and cash flow management point of view, is also an important consideration. Globally, and this holds true for South Africa as well, there are significant amounts of capital allocated for new and follow-on investments – available capital sums are at historic highs.

“This also suggests that investors in SME’s and other private businesses, and the listed space as well, have the ability to inject further funds through debt and equity packages into investee companies to support and navigate the coming months,” Hamilton said.

This will have a lasting impact on the companies’ finance and potentially their shareholding structures, as any equity raised or injected will come with very specific conditions.

He said some of the development finance institutions (DFIs) active on the continent had specifically stated their support to investee companies in ensuring employees can be supported through these times. Similarly, in South Africa, the IDC and the Department of Trade and Industry have allocated R3-billion for specific investments in critical businesses, with applications to be fast-tracked.

Hamilton concludes that “2020 is viewed as a lost year for many but we also have to look back in history and see what has been overcome before.

“It is up to all of us, the people and nation of South Africa, to unite and jointly fight this pandemic and with government, business and the public aligned we will overcome.”

Jason Hamilton is director at First River Capital. He has over 15 years of experience in the banking and the financial services sector where he focused on corporate finance, project finance, leveraged and acquisition finance. He is Guest Lecturer on USB’s Development Finance Programme, present on Capital Raising for Public and Private Projects. He is also Guest Lecturer on USB’s MBA programme, present on Corporate Finance, Mergers & Acquisitions and Funding Strategies. He serves as Faculty at USB Executive Development, and Facilitator for USB’s International Affairs programme. He has been appointed to the Thought Leadership and Business Ethics Committee of AICPA (The Association of International Certified Professional Accountants) | CIMA (Chartered Institute of Management Accountants) effective 1 June 2020.

In the media

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Advice for entrepreneurs

USB News

Entrepreneurs hit hard by Coronavirus – ways to stay afloat

  • MAR 23
  • Tags COVID-19; Coronavirus; global recession; entrepreneurship; Small Business Association

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Seraj Toefy, Custodian of Entrepreneurship at the University of Stellenbosch Business School (USB) says that according to the Small Business Association, the average cash safety net for small businesses is estimated to last only 27 days. 

It is often said that the elderly and those with impaired immune systems are most at risk due to Covid-19, but small businesses are just as vulnerable, with many who are not going to survive a global economic shut down.

… the impact on businesses across the country is monumental … our government does not have the resources to offer the scale of economic stimulus packages as other countries can.

“The South African Government has communicated clearly and regularly around their safety plans, and they are taking decisive action to flatten the curve, but in so doing, the impact on businesses across the country is monumental.  This is not unlike what is happening in other countries, but with one very substantial difference, our Government does not have the resources to offer the scale of economic stimulus packages as other countries can.”

Toefy says that although fear and panic is rampant entrepreneurs now need to rely on one of their strongest traits: perseverance.

“As a small business owner, you often don’t have a larger shareholder to rely on during a time like this, so we must button down the hatches and make sure we’re still standing when the shutdown is inevitably lifted.”

Here are key things that small business owners can do during this time, according to Toefy.

Reduce Costs

It is time to cut all discretionary spend.

“The one advantage that small businesses do have, is that we have most likely built our business up from the bootstraps, and we know how to make do with less.  As our businesses have grown, we start adding “luxuries” like offices, business travel, staff, entertainment, insurance, a bigger car, and countless smaller things to make our lives more comfortable.  It is time to cut all discretionary spend.”

He says that small businesses have a civil duty to try and cut as few jobs as possible during this time, so cutting everything else needs to take priority before staff are affected.

Negotiating with banks and suppliers for payment holidays, rebates, interest cuts and any help they can give should be top priority.  “This economic shutdown is not regional, it is global, [and] so everyone is affected.  Your banks and suppliers need you to survive this, as they too will be struggling, but they will struggle more if they lose you as a client.  Now is the time to negotiate.”

The Department of Small Business Development has also offered assistance to small qualifying businesses.  You can apply from 24th March 2020 at www.smmesa.gov.za

Continue to operate

Toefy stresses that “this is not a holiday, and this is not a time for a pity party.  It is a time to do what entrepreneurs do, and that is hustle.  Be creative and find a way to continue operating.”  If you can, set up staff at their homes with laptops and WIFI and use some of these tools that can assist with remote working:

“If your business is more production based, find a way of maintaining some level of service, even if it is far reduced, and adheres to social distancing.  If you have a factory that normally employs 150 people, then rather reduce your output by putting two shifts of 75 people, and space them out.  This way you are at least still delivering something and keeping your staff employed.”

Co-opetition

Co-opetition is when you cooperate with your competition.  He says that now is not the time to try and beat one’s competition, but to reach out and see if one could share workloads, share knowledge and work together to try and survive this.  “Rising tides lift all ships, and never before have we needed ships to be lifted as much as now.”

Communication

Your staff will be anxious, so help them through this time by being as open and honest with them as you can. It is ok to be vulnerable; you may be surprised by how much support you receive

As with all crises, increased communication reduces anxiety.  Toefy suggests that increasing communication with staff, suppliers and clients is paramount.

“Remind your clients that you are still operational, offer help and support.  Your staff will be anxious, so help them through this time by being as open and honest with them as you can.  It is ok to be vulnerable; you may be surprised by how much support you receive.  There have been several cases of companies where staff are choosing reduced hours and pay instead of laying people off at this time.”

Strategise

There will most likely be a distinctive difference between before Covid-19 and after covid-19. Be prepared to be better, after.

Small businesses often don’t have the time to strategise due to work load however the slow-down of the economy does not mean that one must slow down.  Toefy says that business owners should use this time to think of ways of how they will do things better when the shutdown is lifted.

“Being agile is not a strategy, it is an ability.  It is an ability that is best used within the framework of a strategy.  The Business Model Canvas is a good framework to ensure that all elements of your business are being looked at during this time. There will most likely be a distinctive difference between before Covid-19 and after covid-19.  Be prepared to be better, after. “

Read and study

As an entrepreneur, your single biggest asset is you.  Use this time to work on yourself.  Read books or study online.  There are several short courses that one could do while in isolation.

Strive don’t just survive

Quoting Rahm Emanuel who said, “Don’t waste a good crisis”, Toefy says that we are all thinking about ways to survive this crisis, but what if we implemented some of these tips and came out of isolation even stronger.  “Perseverance, tenacity, creativity, determination and passion are traits synonymous with entrepreneurs.  Now is the time to call on all of them and not just survive, but strive.”

 

Seraj Toefy
Custodian of Entrepreneurship at USB and Head of Africa at Centuro Global

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