Is it really all doom and gloom? What are the lessons, if any, that we can take from nearly a full year of restrictions on trade?
As I write this, we are in the midst of a second wave of the COVID-19 pandemic. Businesses that needed a busy festive season or, alternatively, those that needed a year’s trading to survive the December shutdown, are all facing a new year with next to zero cashflow. As much as we subconsciously knew that 2021 would not just mean the pandemic would be gone, I will be the first to admit that I did have the hope that comes from a new year, but as it stands now, I have used my 14-day free trial of 2021 and would like to return it, please.
That said, is it really all doom and gloom? And what are the lessons, if any, that we can take from nearly a full year of restrictions on trade? As a CA that consults to small-to-medium sized enterprises, I have taken away three main lessons.
Failure is sometimes good
It is really hard to see an owner-managed business fail. Working in the sector, I know that you will never find a more passionate boss who is literally willing to put in the last cent they can find to keep it going, but sometimes you need to face reality. The businesses that failed as lockdown hit had mostly been in a debt spiral for a while, and that was the straw that broke the camel’s back.
But it was not all bad. Having lost everything, business owners could look at the remnants and pick up what was actually profitable and viable and restart on a smaller manageable and profitable scale. For larger operations, everything was accurately assessed, and lines that were held onto − for emotional reasons perhaps − were finally let go of. It was a time of consolidation, restructure, downsizing, and focusing on one question: what makes a profit?
Give to Caesar what belongs to Caesar
Statutory compliance was a lifesaver for many businesses, as it allowed them to access grants and support funding, as well as the much-criticised TERS fund. Loans required tax compliance and up-to-date accounting records; TERS required your UIF returns to be up to date, and for many businesses these funds saved them as well as the staff and families they support. Businesses that had cut corners on statutory and compliance spend (including hiring qualified accountants) suffered the consequences, and now more than ever the value of such individuals was finally acknowledged.
Cash is king
Before business owners phoned their accountants, they phoned the bank to find out what their options were, and the businesses that survived unscathed were generally the ones that had a healthy cash reserve to start off with. South Africa does not have a culture of saving: when times are good we spend, and when times are bad we cut down, but I have seen a permanent change in behaviour. Putting money aside has now become a priority.
Looking forward, I look back in that the last pandemic was followed by the roaring twenties. Hopefully we have used the lessons learnt in this time to build lean and robust businesses and to reap the benefits the future may hold.
AUTHOR | Andrew Mckay CA(SA)