There are three things bugging business owners during this period of COVID-19 uncertainty.
The ability to operate, liquidity, and the ability to sustain staff at a time when a majority of employers are either reporting pay cuts or layoffs.
Some businesses have shut down completely due to a myriad of reasons including the inability to sustain their employees and barriers to free movement while others continue to operate, but as things stand, the steam will run out without further interventions to cushion their establishments.
To that effect, there are three major steps that business owners ought to consider in order to manage their liquidity, conserve cash, and manage their stakeholders.
First, business owners need to audit the impact of the pandemic on operations based on its effect on their line of work both in Kenya and globally.
The review should factor in both the supply and demand sides of the value chain i.e sourcing of input, delivery of goods, and payment before turning their attention to the second step which is to evaluate their liquidity positions and resources at their disposal and their ability to meet their ongoing obligations.
Medium and large businesses have a third factor to consider, stakeholder engagement which will require them to develop a solid engagement plan.
PricewaterhouseCoopers (PwC) experts Muniu Thoiti, East Market Area and George Weru, Partner Advisory, Business Restructuring Services, maintain businesses need to undertake a critical evaluation of the potential impact of the COVID-19 pandemic on the availability of critical supplies such as raw materials, labour and external services as local and international supply and logistics chains continue to be disrupted.
“This assessment should also consider whether the prices of these critical supplies will be adversely impacted by scarcity and, if so, whether the adverse cost movements can be easily passed on to customers,” the experts say in their advisory dubbed Responding To The Potential Business Impacts of COVID-19.
“Furthermore, even with the availability of these critical supplies, businesses must contend with the potential adverse impact of increased absenteeism or employee sickness on productivity,” the partners write.
Below is a list of factors the experts think businessmen should consider
● Will you be able to access the market, and your customers the products?
Increased travel restrictions, on the other hand, are likely to impact a business’s route to market, particularly where its products and services are not considered as “critical supplies and services” that may be exempted from the enforcement of travel restrictions.
Businesses need to consider to what extent they can leverage digital platforms and other delivery methods to mitigate the potential impact of travel restrictions on their operations, and the impact of such delivery models on the attractiveness of their products from pricing and accessibility perspective.
Related to travel restrictions, businesses need to consider whether their intended customers will be able to access their products.
● Are your products and services essential?
There is also a need to consider the potential impact of COVID-19 on demand for the business’ products.
Even in instances where route to market and customer access to products are not impacted, businesses need to consider whether their products are essential to their clientele since consumers are likely to limit their expenditure on non-essential goods and services during this period of uncertainty.
● Can your customers pay?
Businesses need to worry not only about their own financial health but also the financial health of their key trading partners.
For credit sales, businesses need to go the extra mile in assessing the potential impact of COVID-19 on the creditworthiness of their customers to limit the emergence of bad debts, which will ultimately have an adverse impact on liquidity.
These and any other relevant operational considerations should inform the business on whether it will be able to continue providing goods and services to its target market and, where it is able to and whether it should after considering expected costs and returns.
Rapid review of liquidity
Forecasting in the face of uncertainty. The ability to generate or otherwise access cash to meet ongoing business needs is the lifeblood of any business.
Measures intended to increase liquidity and facilitate access to credit by businesses have become common
features of the policies adopted by governments across the world in response to the corona pandemic.
Businesses should where necessary, proactively engage with their financiers to seek support in the form of short term facilities to enhance liquidity, or forbearance to the extent that their projections indicate a potential inability to meet debt repayment obligations.
The Central Bank has struck an agreement with lenders in the country that will see banks hand customers moratoriums on loans.
Who are your key stakeholders, and what are their interests or concerns?
Securing the support and cooperation of your key stakeholders in respect of any plan you adopt is just as important as formulating the right plan.
Businesses need to identify their key internal stakeholders especially employees and external stakeholders including lenders, suppliers, customers, regulators, the issues that affect them, and their likely reaction to changes as a result of the current business environment.
The identification of stakeholders and their interests should be accompanied by the formulation of robust communication plans centred around early, proactive and transparent engagement.
● What are the terms of your key business agreements?
Specific attention should be paid to the terms of the business’ contracts for debt, supplies and labour with a view to assessing flexibility for variation of terms including pricing and terms of payment or termination, to cushion the business against the current crisis.
Additionally, businesses may want to consider potential legal and commercial implications of the inability to perform in line with the terms of these contracts.
While undertaking this assessment, businesses need to consider both immediate and long-term objectives since the decisions taken during this period are likely to have implications long after COVID-19.
As such, and to the extent possible, businesses should evaluate the possibility of striking a compromise with their key stakeholders who, no doubt, understand the prevailing circumstances.
This Article Features Excerpts From a PwC Bulletin authored by Muniu Thoiti and George Weru