Do not be penny wise and pound foolish

We have already started to focus on what companies need to do to move on from their financial distress.

The first aspect that needs to be looked at is rebranding and adopting a culture of accountability within the business. This can sometimes be hard to achieve, but it is a necessary component of any turnaround plan.

From here, we move onto finances. Culture first, finances second. Too often, the root cause of distress is poor leadership and a questionable attitude when it comes to the company’s finances. In a recent online event, Siviwe Dongwana noted that one of the causes of Basil Read’s distress was the attitude that the company had towards cash.

Revisit the basics
We have noted before that a business coming out of distress or business rescue is akin to hitting the restart button on your business. You have the entrepreneurial knowledge, but there are some basics that can be revisited. I recently read an interesting article on the Entrepreneur website which discusses the often-sensitive topic of finances in detail.

– Ensure the company’s books are kept current and accurate. The Entrepreneur article points out that having timely and reliable financial reports requires bookkeeping to promptly close the month. If a company outsources this responsibility, they need to ensure that their bookkeeper is knowledgeable and that they can run your financial reports with confidence within a week. All too often, companies rely on bookkeepers only to find out at year-end that the bookkeeper was not qualified and made costly mistakes in the business.

– Know your business numbers. The article adds that business owners should not put all their faith in an accountant or bookkeeper to tell them how their business is doing. Business owners need to always understand the financial health of their business. Yes, companies can outsource the bookkeeping; however, they need to ensure that they receive valuable financial advice from their accountant and make informed financial decisions for the business. With the proper management of business finances, there will be an increase in the profitability of the business.

– Work with tax professionals who can help make smart decisions. The right financial professionals can help companies make great decisions. Every business owner has a unique situation, so having a single method for all business owners does not work. It is wise to invest in a tax accountant who can demonstrate how to take advantage of available tax opportunities.

Planning for an uncertain future
An important aspect of any recovery plan is goal setting. It holds management accountable and sets the tone for future actions.

This is great. But we are in the middle of not only a global pandemic, but a deep economic crisis where companies are struggling for growth. How do distressed companies approach the challenge of goal setting when they are faced with an uncertain economic future?

The business rescue industry in Australia has been around for a long time and is highly legislated. I recently read an article on the Dynamic Business website where the journalist spoke to a number of the country’s top executives who gave their insights about this challenge. The quotes below are taken from the article.

The secret is in the title – PLAN! Many, if not most business owners, have had a tumultuous period during the pandemic, be that positive or negative. The temptation is to catch your breath, take the foot off the pedal and cruise after such a tough period, but that is exactly what not to do. For those who had a tough time, start planning a bounce back, using what we do know and building risk management around what we do not. For the lucky others who, like many of our clients, are still swimming in additional government-assisted cash flow, it is even more important to plan allocation of resources. The gravy train of government handouts is coming to an end, and you need to ensure your business is ready for the next stage, whatever that is. As always, hope for the best, build plans for the worst, and lean on your knowledge networks. – Jason Bertalli, Member of Entrepreneurs’ Organization Melbourne, and Director of BNR Business Accountants.

In an ever-evolving world, it is important for leaders to continuously review business and market data to make the right decisions. Responding to correct information is crucial when assessing which investments delivers the best returns while minimising risk and preserving cash flow. While scenario planning has always been key, business leaders should now consider how additional scenarios might impact their business. Diligent preparation can help keep the lights on in adverse conditions, but also prepare you to capitalise on market shifts where appropriate. Consumer-facing businesses might want to consider how they target alternative customer segments or find new revenue streams by exploring B2B opportunities. Whatever scenario you are planning for, the key is to ensure you are making decisions based on accurate and reliable data. Planning might not guarantee an outcome, but the right approach backed by robust processes and tools can help leaders prepare their business for both short- and long-term challenges, build resilience and support business continuity. – Jason Toshack, General Manager ANZ, Oracle NetSuite.

Planning for an uncertain year requires mental preparation for big changes, planning for worst-case scenarios and most importantly, seeking professional financial help. As we have seen since the pandemic, businesses might need to pivot, focus on new channels, or just do anything to survive. Our research shows small businesses with an accounting advisor relationship are now three times more likely to feel positive about the upcoming end of financial year and tax preparation period than those without. Advisors help you access relevant government support to include in your business plans. They guide you with your accounting, business best practices and avoiding potential costly pitfalls. The value an advisor brings to your business extends far beyond meeting compliance obligations. Many become like friends. Half (50 per cent) of small business leaders told us they lent on their advisor for ‘emotional support’ during the pandemic. An advisor relationship is the gift that keeps on giving, all year round. – Meagan Wood, Head of Advisor Strategy at Intuit Quickbooks.

Business rescue can assist
Business rescue professionals are perfectly positioned to help distressed companies make key decisions when it comes to identifying the root cause of their distress as well as implementing measures that will help them move on from their distress.

We always teach our children that honesty is the best policy. This applies to distressed businesses as well. Distressed business owners need to face up to the role that they played in the company’s distress. Introspection is a hard process that does not happen overnight. However, it is important because taking accountability for your role in the company’s also allows companies to move on from their distress.

Charles Phiri is an Associate at Indalo Business Consulting.