Finance: What you need to know

Prior to the advent of the Covid-19 Coronavirus, the South African business environment and economy had already been adversely affected by the recession, the crippling effect of load-shedding and the downgrades by the rating agencies. Businesses (primarily small and medium), were struggling to keep their ‘heads above water’ whilst the average South African has been getting poorer compared to previous years and spending power of consumers has been decreasing.

The Covid-19 Coronavirus has exacerbated this. It is estimated that around 250,000 South African businesses (both formal and informal) will have to permanently shut down, about 1,000,000 South Africans could lose their jobs, and the South African economy could contract by approximately 6% in 2020, due to the impact of the Covid-19 Coronavirus. In addition to this, the 21-day lock-down, announced by President Ramaphosa in March 2020, was extended and will continue until will now run to 30 the end of April 2020. During his weekly address to the South African nation on 23 April 2020, the President announced a phasing out approach to the lockdown with some businesses to resume commence opoperations from 1 May 2020. Other businesses are expected to resume operations in terms of a timetable detailed by Government.

Businesses which were previously under pressure, must now contend with the additional impact of the Covid-19 Coronavirus. Even though the South African Government introduced numerous Coronavirus stimulus packages to cushion the blow to the South African economy and businesses in general, business will still be negatively affected by the Covid-19 Coronavirus and the resulting lockdown.

A couple of important issues facing businesses arising from the lockdown are:

• Employees – most non-essential businesses have had their non-core staff on leave during the lockdown period, whilst their core or essential employees have been working from their private residence and/or the office. These businesses had to decide how to treat the lockdown period for employees who they considered as non-core/non-essential in terms of employee benefits and remuneration i.e. paid or unpaid leave, special leave, annual leave, retrenchment or retention of employees, etc. Determining what “Doing the right thing is” in difficult times is not easy, especially when individual livelihoods are at stake. 

• Cashflow – Generating revenue during the lockdown period i.e. March and April hashave proved extremely difficult for most businesses, especially non-essential businesses. This is even more so now that the 21- day lockdown has been extended by an additional 14 days. This has adversely affected cashflows – even though the business is not generating revenues, the business still needs to meet its operational commitments i.e. rent, salaries and wages etc. Given already poor trading conditions from January to March 2020, many businesses were relying on generating additional revenue and cashflows over the Easter holidays to build up their ‘kitty’. The lockdown has put an end to this.

• The knock-on effect – many businesses are in the same cashflow predicament as others, and non-payment of creditors, rent etc. will have a ripple and knock-on effect to other businesses, thereby exacerbating the situation. Businesses need to negotiate extended credit terms with suppliers and landlords, but, at the same time, take into consideration the impact that non-payment will have on their businesses. Similarly, debtors will need to be communicated with to ensure that they maintain their credit terms and, where possible, extended credit terms should be offered to them. Bad debts should be avoided at all costs.  

The South African Government and other interested Individuals \ Companies has introduced several stimuli to assist individuals, households and small and medium businesses. These include: These include:    

• Utilisation of the UIF system to assist employers with supporting their employees during this period (TERS).
• Utilisation of the compensation fund where employees are infected with the virus while performing their occupational duties.
• Utilisation of the tax system, where the South African Revenue services will assist with the following tax relief measure:
  •  Government will provide a tax subsidy of up to R500 per month for the next four months to qualifying employeesemployees.
  • Tax-compliant businesses with a turnover of less than R50 million will be allowed to delay 20% of their Pay as You Earn (PAYE) liability over the next four months, without incurring penalties or liabilities.
  • Tax-compliant businesses with a turnover of less than R50 million will be allowed to delay a portion of the provisional corporate income tax without incurring penalties or liabilities
  • Taxpayers contributing to the Solidarity Fund; and
  • Additional tax relief measures relating to the payment of skills development levy, carbon tax and VAT.
• Making available Covid-19 relief loans / funding / donations which includes the following:
  • The South African Future Trust, which is administered by the Oppenheimer family – total available for distribution is R1b.
  • The Covid-19 SME Fund administered by Business Partners (Rupert Foundation & Remgro) – total available for distribution is R900m.
  • The Debt Relief Finance Scheme administered by Department of Small Business – total available for distribution is R200m.
  • The Business Growth/Resilience facility administered by Department of Small Business – total available for distribution is R300m
  • The Loan Guarantee Scheme in partnership with the major banks, National Treasury and the South African Reserve Bank – total available for distribution is R200b.
  • The Giving for Hope Fund administered by The Willowton Group in partnership with Albaraka Bank – total projected available for distribution is R500m.
  • The National Empowerment Fund -COVID-19 Black Business Funding Solution – total available for distribution is R200m.
  • The MCEP Covid-19 Programme administered by Industrial Development Corporation – total available for distribution is R300m.
  • The IDC Covid-19 Essential Supplies Intervention administered by Industrial Development Corporation – total available for distribution is R500m.
  • The Tourism Relief Funding administered by Department of Tourism – total available for distribution is R200m.
• Other initiatives introduced include the:
  • The Spaza Shop Grant Funding administered by Department of Small Business Development in collaboration with SEFA – total available for distribution is R30m.

Making more than R3 billion available through the Department of Trade, Industry and Competition for industrial funding to qualifying businesses

Tax-compliant businesses with a turnover of less than R50 million will be allowed to delay 20% of their Pay as You Earn (PAYE) liability over the next four months, without incurring penalties or liabilities

• Tax-compliant businesses with a turnover of less than R50 million will be allowed to delay a portion of the provisional corporate income tax without incurring penalties or liabilities
  • The South African Reserve Bank dropped the repo rate by 21 percent which now makes borrowing cheaper
  • The Financial Sector Conduct Authority (FSCA) is working with Financial Services Providers and SARS to enable employers to apply for a reduction in, or suspension of, employee benefits contributions, without incurring penalties or liabilities 

In addition, several wealthy South Africans have created funds to assist small and medium businesses and individuals with interest-free loans and donations. Some of these include:

• The R1 billion fund established by the Rupert family and Remgro Limited.
• The R1 billion fund established by Nicky Oppenheimer and family.
• The R1 billion fund established by the Motsepe Foundation and partners.

The R100 million fund established by Willowton and Albaraka Bank. 

Effective and efficient business leadership and management is going to be vital when some semblance of normality returns to South Africa. It is not going to be ‘business as usual’ and businesses need to take stock now, forecast and prepare for the months ahead. Even when the lockdown is eventually lifted, some business and economic activities will probably not return to normality – businesses in the travel, leisure, services and entertainment industries would still be adversely affected as the mindset of the consumer has changed due to the pandemic. There will still be lingering doubts about the danger of infection of the virus and being in proximity of others.

What should the key focus areas be for businesses in a crisies? – 

• Cashflow Management is a priority– with many businesses unable to generate meaningful cashflow over the last two months, cashflow management becomes extremely critical. It is recommended that a twelve-month cashflow forecast be done to determine the requirements of the business and ultimately to determine if the business will generate enough cashflows to continue into the next twelve months. Items to consider include loan and debt management, loan and debt restructuring and debt holidays, extending credit terms to debtors, requesting extended credit terms from creditors and suppliers etc.

• Employees – effective management of your workforce is critical. An assessment should be performed on your workforce requirements with a view of understanding how to better manage your employment costs.  

• Restructure of operations – management will need to perform a critical assessment of their business operations and determine whether to restructure their business to eliminate non-core, non-profitable and non-essential services, right-sizing of branches and outlets. In addition, a decision must be taken on discretionary and non-essential spend – introduce thresholds and limits.

• Supply chain management – the pandemic will have caused significant disruptions to supply chains across the globe and this will create major supply chain issues for South African businesses. South Africa exports significant amounts of raw materials whilst at the same time imports finished goods and some raw materials. Traditionally, South Africa is a net importer. With the global pandemic, it is expected that most countries will introduce stricter legislation with regards to imports, therefore affecting exports from South African businesses. In addition to this, the South African Rand has depreciated against most other currencies since a pandemic was declared – the ZAR was trading around 14 to the USD at the beginning of the year whilst it is currently trading at 18 to the USD. The depreciation of the ZAR will have a significant impact on input costs for businesses that are importing raw materials for their manufacturing process, as well as those importing goods and services for resale in South Africa.

 How can Usizo Advisory help you?

Usizo Advisory is a multi-disciplinary advisory and consulting business that provide services including market research and analysis; strategy, development and implementation; business planning and financial modelling; leadership and development; optimizing business practices and achieving operational excellence; labour and employment law services; brand elevation through strategic positioning; thought leadership publications; oversight of marketing and communication strategies; as well as Board and Governance services.

Usizo Advisory, from a financial and business advisory service offering,  can assist aid businesses and individuals during these difficult times in the following numerous ways. Our financial and business advisory service offerings include:

• Advising on how to access and assisting with accessing the various stimuli available for individuals and businesses.
• Cashflow management i.e. preparing cashflow projections, forecasts and budgets, including providing an independent review of these..
• Strategy review and adaptation of strategic response,of business operations,  including recommendations for streamlining and optimization of business operations. This can include and the assessment of non-profitable and non-essential operations..
• Strategic and independent opinions on profit maximization through assessing operational efficiency and revenue – focused streams..
• Advising on cCorporate and debt restructuring as well as assisting with .raising additional debt for the business (both short and long term) – this would include assisting with assimilation of supporting documents and communications with financial institutions.

In addition, our financial and business advisory service offerings are specifically tailored to assist you with: 

• Raising capital / debt / equity partners for new and existing businesses.
• Mergers, acquisitions and disposals of business operations / major plant and equipment and / or part of a business.
• Preparation of business plans and loan applications. 
• Accounting services, including Annual Financial Statements.
• Assistance with readiness for statutory and regulatory audits.
• Assisting with providing finance resources on a short-term contract.
• Tax services, including VAT, income tax, corporate tax.
• Tax opinions – providing technical tax opinions. 
• Tax structure – how best to optimize corporate structure from a tax perspective
• Labour and employment legal services
• Business coaching and mentoring
• Team empowerment workshops

Please contact us for more information:

Viven Naidoo CA(SA) – Usizo Finance Advisory Leader

Tel: 081 030 0190 

Email viven.naidoo@usizoas.co.za 

As this situation continues to evolve, we are bound to see further changes and guidance on how best to manage social and economic challenges. We aim to support our clients during this difficult period. The best advice is to start communicating any potential problems to us as soon as possible so that we can work with you urgently to identify solutions. We look forward to supporting you.  Stay safe and stay healthy!