One of the unique features of the turnaround profession is, because it is very small, most people know each other, and they know which projects a specific turnaround professional is working on at any point in time. it is always pleasing to me when I hear about a successful rescue and the elements that were involved in that success. the business rescue profession thrives off of this.
I recently read an article by Deloitte which points out the importance of sharing success stories as well as the stress points that turnaround professionals face.
A charging herd
The article points out that as the world recovers from the last crisis, and with the next one already happening, it’s apparent that more gray rhinos will come. These risks will become more frequent and arrive simultaneously—a “crash” of gray rhinos. For companies, this means operating in a highly uncertain environment, which requires resilience and an honest assessment of where their risks lie.
There’s seemingly endless information out there about how companies can ready themselves for the next crisis or disruption, but our 2022 Deloitte Africa Restructuring Survey revealed one particularly important insight that we think is worth adding to the mix: While preparing for the next gray rhino, C-suite leaders should ensure that they’re looking through the same pair of binoculars as their key stakeholders and collaborators, including their lenders.
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Business rescue tracks the indicators that matter
The Deloitte article adds that, in a world of frequent disruptions and consistent uncertainty, new winners and losers will emerge across regions, countries, and sectors. Inflation and the threats of recession are altering consumer behaviour yet again, as the global economy experiences the reverberating impact of Russia’s invasion of Ukraine. Companies that were reaping the rewards of pent-up demand just months ago may show signs of stress later this year. In this environment, where winners can become losers alarmingly quickly, the proactive tracking of indicators of financial stress is critically important for boards, management teams, lenders, and other financial stakeholders.
As the Covid-19 pandemic demonstrated, in the face of a crisis, organizations need a liquidity buffer—sufficient cash runway to implement the operational and financial rightsizing required to survive and thrive. According to our study—which included a survey of 111 restructuring professionals and C-suite executives fielded in January and February 2022 in Kenya, Nigeria, and South Africa—declining operational or free cash flow is the top-ranked indicator of an organization’s financial stress. Eighty-five percent of respondents across Africa included this in their top five, and the remaining top metrics were trading- or cash flow–related.
Many professionals won’t be surprised by this finding. Cash is the lifeblood of business, and close cash flow tracking and management are critically important as signs of stress appear. However, while survey respondents across geographies and roles broadly agree on which are the most important indicators of financial stress, views diverge on how often these are tracked by management teams.
The article points out that C-suite respondents to the Restructuring Survey believe that they regularly track revenue, profitability, cash flow, and working capital but acknowledge that debt ratios are less of a priority. Lenders’ perception, however, is almost diametrically opposed: They believe that companies track cash flow and balance sheet metrics less often than headline-making revenue and share price indicators.
The survey data indicates a misalignment between the information that lenders and other restructuring professionals would like to see measured and the actual information tracked and provided to stakeholders. This could affect companies’ ability to secure emergency funding: Lenders across Africa rank the availability of reliable information as one of the highest barriers to decision-making, second only to the banks’ reputational risks.
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Adopt a herd—or crash—mentality. Allow business rescue to help.
So how can management teams better prepare their companies for future crises and disruptions? Don’t lose sight of your stakeholders’ priorities and perspectives. While C-suite respondents in our survey ranked actions within their control—diversification, establishing crisis committees, and appointing advisors—the highest,3 lenders recommend that clients engage with their bankers first and as early as possible to ensure emergency funding lines are available.
The article points out that halting a crash of gray rhinos may well seem impossible, but by communicating early and encouraging proactive steps to manage risk, the worst of the charge may be avoided.
Trial by media
There is another reason why it is important to share the successes and stresses of the turnaround profession.
Over the past two years, business rescue has received a lot of press; and not all of it has been good. During the biggest delays of the SAA business rescue, there was a lot of press accusing SAAs BRPs of delaying tactics, which was not true. Again, in the Edcon recue, questions were raised about fees. Finally, in the Comair rescue/liquidation, many questions were raised about the efficacy of business rescue.
The public is heavily influenced by the media, and if the media misleads the public by not understanding the nuances of the profession, then there will be no trust in the system. And the cornerstone of business rescue is trust.
Moses Singo is a Partner at Genesis Corporate Solutions and is a Junior Business Rescue Practitioner.
