At the height of the coronavirus pandemic, many businesses were brought to their knees amid massive closures, job losses, pay cuts and unexpected unpaid leave, while others have adopted a ‘wait and see’ approach.
At the time, the most pressing near-term problem was the challenge of meeting fixed operating costs— payroll utilities, rent, mortgage payments, and insurance.
- ICEA Lion: Local banks are renewing their hunger for risk
- Rich western countries are giving Kenya a debt relief
In a review drafted by PriceWaterhouseCoopers (PWC) they called on businesses to undertake a three-step process to manage their liquidity, conserve cash and manage their stakeholders:
Conduct a critical review of the impact of COVID-19 on operations based on its effect on the specific sector and the general country/global economy;
Conduct a rapid review of their liquidity positions and assess the resources available in the short to medium term to enable them to finance their operations and meet their ongoing obligations; and
Assess the impact of business decisions informed by the two previous points above on internal and external stakeholders and develop an effective stakeholder engagement plan.
This might have helped many businesses survive and many new ones get started as those who lost their employments sought to bounce back.
But now, as state support for businesses comes to an end, the real test for survival for Kenyan businesses if about to unfold, a situation that will either see some businesses triumph or collapse.
Tax measures have been re-introduced including the return of income and value added tax to pre-covid rates which may squeeze bottom lines and reduce consumption.
The National Treasury revised the tax subsidies including the top personal income tax rate and the corporate tax rate, both reverting back to 30 per cent from 25 per cent, effective 1 January 2021.
Additionally, the value-added tax (VAT) reverted to 16 per cent from 14 per cent.
Bank have also started unwinding loan repayment holidays where they had agreed to delay principal payments, lengthen loan maturities or suspended deductions.
According to the Central Bank of Kenya, banks restructured Sh1.38 trillion which will now become payable.
“To survive businesses need to assess their operational models from financing, inventory, workforce to their markets and distribution”, says PWC’s Mr. James Muhia.
“In order to fix your business you need to take a good look at how you have been operating to find out what is working and what is not working” says Mr. Muhia
“You have to do an in-depth analysis of your strengths and weaknesses, opportunities and threats”
But like the Swahili say, Kinyozi hajinyoi-even a good barber cannot shave himself, you may need an independent unbiased view from outside.
That is where experts who offer advisory services like PWC can come in, asses the business and offer practical and manageable solution through which companies can navigate the pandemic and emerge stronger.
The experts will help the business conduct financial modelling and short-term cash flow forecasting as well as short-term liquidity management.
They do independent business reviews and options analysis and offer operational and financial restructuring advice.
They can even help negotiate with financiers and other key stakeholders and assist in distressed and/or strategic mergers and acquisition- M&A, asset disposals and insolvency.
These are areas that will be crucial for businesses in this recovery period to enable them not only navigate the present crisis but try to predict outcomes to focus recovery efforts on the areas that matter.