Small businesses must now find ways to survive in the “new world” that COVID-19 and lockdowns created. Sustaining your business means having a detailed look at your cash flow and operating costs and determining where money can be saved or alternatively, income increased. Our law firm had to do this as it was anticipated that 15% of all the law firms in South Africa would close as a consequence of COVID-19 and the hard lockdown.
We were fortunate in that prior to the lockdown BBP Law invested significant capital in ensuring that the practice could operate in a virtual world. Our servers are now cloud based, we phased out desktops in favour of laptops, moved to an integrated practice management system for billing and invoicing and ensured that all staff (including fee generators) were able to account on a daily basis for their time regardless of where they worked.
While the initial investment was significant, hard costs were reduced significantly and 80% of our practice is able to operate virtually. We at BBP Law took a principled decision that we would not retrench staff as a consequence of COVID-19 and the lockdown but would share responsibility for impacts on the business. This was not an easy decision, but it meant that management would have to pay attention to our dwindling cash flow, particularly our debtor and creditor accounts. We carefully looked at all of our agreements with suppliers, and bankers, including our general terms and conditions for doing business. It was clear that many of these agreements had to change to address our new reality. We had to put in place a new business plan and revise our income and cash flow projections. These documents were also necessary if we were to survive.
It is important to note that many businesses were already under severe cashflow constraints with South Africa’s economic recession. Cashflow constraints often meant that debit orders were missed, payments were not timeously made and arrangements with creditors had to be put in place. Often payments to SARS such as VAT and PAYE are the first to be missed.
This cycle is exacerbated if having a compliant tax clearance certificate from SARS is an essential requirement if your business provides goods and services to organs of the state. All of the aforesaid challenges materially affect your business’ creditworthiness and ability to access relief funding in its time of need. We are aware that many clients do not have access to practical mechanisms and vital information in respect of dealing with SARS, particularly deferment and settlement options.
There are many good businesses out there that have struggled to survive prior to COVID-19 and now falling foul of relief funding credit facility requirements, particularly those that are being administered by banks such as SAFT and the SARB guarantee scheme because of missed debit orders, late payments, payment arrangements with creditors and missed SARS payments prior to COVID-19.
In respect of SAFT and the SARB guarantee scheme, amongst the other requirements, the most subjective and nebulous requirement is that the applicant must be in “good standing with the bank”. Most businesses that have been suffering from South Africa’s economic recession and are now in need of relief will be subject to this insurmountable hurdle and credit vetting requirement.
Conversely, there are also many businesses out there that may be in good standing with the banks that have shareholders with capital that will now be able to access relief when fully able to weather the COVID-19 storm without relief. Furthermore, there are businesses in good standing with the banks but effectively trading in insolvent circumstances who can access the relief provided, however, with absolutely no ability to repay such funding merely postponing their eventual demise.
BBP Law is uniquely positioned to assist clients in re-evaluating their contractual relations whether it be with shareholders, funders, suppliers, creditors and debtors. In addition, most businesses must now seriously look at their terms and conditions for doing business but most importantly put in place the necessary delegation of signing powers and authorities, tendering policies and procedures and contracts policies and procedures as concrete risk mitigation strategies.
Should you require assistance or information pertaining to the above, please do not hesitate to contact us.