Personal Finance

Five strategies to see your business through Covid-19

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Summary

  • More than a year and three months since the first case of the Covid-19 was reported, the virus is still wreaking havoc across the world, and looks set to be with us for the near future.
  • Our initial estimates were that the viral pandemic would be with us for a period of 24 months from when the first case was reported.
  • Savvy business strategists have already factored the pandemic disruption in their immediate and medium-term plans.

More than a year and three months since the first case of the Covid-19 was reported, the virus is still wreaking havoc across the world, and looks set to be with us for the near future. Our initial estimates were that the viral pandemic would be with us for a period of 24 months from when the first case was reported.

Savvy business strategists have already factored the pandemic disruption in their immediate and medium-term plans.

Careful empirical and anecdotal research has showed that there are a number of factors that will set apart the winners from the losers, across a wide range of business sectors.

Liquidity

The first, and most critical, is liquidity and working capital management during the pandemic. This is simply not the time to splurge on discretionary expenditures such as advertising, travel and building of fancy office buildings. It is time to trim the fat by cutting excess expenditures and to boost liquidity by disposing non-core assets.

Finance teams should be looking to negotiate for a cut in recurring costs such as occupancy costs and to reduce all forms of non-discretionary expenditure. Loss-making products or business lines need to be halted to avoid bleeding the organisation cash, based on a cautious assessment of the impact of such decisions on the overall brand value. Cash reserves should be safeguarded, as borrowing costs are set to increase and financing options could shrink significantly in the medium term.

Central Bank of Kenya data shows that the proportion of non-performing loans (NPLs) shot up to 14.1 per cent of the total banking sector loan book of Sh2.9 trillion as at December 2020, up from 12 per cent in December 2019. This reflects the negative impact of Covid-19 on private businesses last year, besides signalling a likely tightening of the credit market in the months ahead.

A CBK market perception survey, however shows that bankers expect an increase in private sector credit growth this year, with expected recovery of key sectors affected by Covid-19 and government policy interventions including the operationalisation of a Credit Guarantee Scheme for the MSMEs. Eligible businesses should be on the lookout for such opportunities when they materialise, to boost their liquidity levels.

Banks have also indicated intention to move fast towards risk-based pricing models for credit, which should again offer a window for businesses to tap credit based on the strength of their balance sheets.

Resilient supply chain

The second important pandemic survival strategy is to have a more efficient and resilient supply chain.

Fears of contracting Covid-19 have limited movement, meaning businesses can no longer rely on the traditional routes to reach customers and must contend with ever changing materials and inputs supply chains. Optimising these two will ensure that businesses can not only produce goods or services in a timely and high quality manner, but can also reach the customers. The imposition of curfew hours has, for example hit certain businesses hard, notably those in the entertainment and transport sectors. The route-to-market has changed, and only the most agile will survive.

Businesses can further look to pivot by digitising their products; such as book publishers, newspaper printers and learning institutions, need to switch their delivery channels and migrate their customers to the perceived safe spaces. The transport, travel, tourism and hospitality sectors need to come up with value packages and combined offerings to survive the major slump in their industry.

Restaurants should ensure strict compliance with the various public health guidelines to make their customers feel safe, while also pivoting more to home deliveries.

Optimal tax structures

An optimised tax structure is the third most important Covid-19 business survival strategy. The aim of all businesses should be to be tax compliant and efficient, ensuring that there are outstanding or arising tax exposures will go a long way in ensuring the sustainability during the pandemic.

Tax computation is of course dependent on the business structure; whether a sole proprietorship, partnership or limited liability company. While Covid-19 tax holiday measures announced by the government early last year expired in December, ensuring that the business has no material exposures that could affect its cash-flows is important. Engage professional tax consultants to keep your books, it might look more expensive to begin with but is the more cost effective strategy in the long run.

Strong relationships

The fourth survival strategy is to build strong relationships with customers, suppliers and bankers. Your relationship with your suppliers and financiers could make all the difference between business continuity or disruption during the pandemic. In instances of constrained supplies, it is the businesses that have strong relationships with suppliers that get their orders first.

When Covid-19 disrupted global supply chains in the first half of last year, some businesses were more severely affected than others, depending on relationships cultivated with their financiers and suppliers over time. Such relationships are built on trust, fulfilment of obligations and professional interpersonal engagements. Identify your most key customers, and give them special treatment to keep them coming back.

You could, for example, appoint your best customer relations employee to always handle accounts of your top 10 clients. In some cases, your customers are also your suppliers and vice versa. A company that supplies IT services to a bank could, for example, also bank with the same institution that it serves. Identify such unique institutions and handle them with utmost care.

Clear rolling plans

Finally, businesses must set clear rolling plans and estimates to survive the pandemic disruption. It is the duty of management to ensure that goals and targets are set, well understood across the organisation, cascaded and tracked on a regular basis so as to ensure that the strategic objectives of the business are achieved.

The targets could include a radical shift in traditional business practices or products to take cognisance of the pandemic. Insurance companies could, for example, start offering plans that cover Covid-19 for all their customers. A bank could give interest holidays and offer restructuring plans to its struggling customers with good repayment records.