Small businesses need a lifeline and business rescue practitioners should help

As businesses of all shapes, sizes, industries and expertise scramble to keep the lights on and their operations running, while weathering the simultaneously raging storms of economic uncertainty, limited access to credit, and high levels of competition, recent Stats SA figures on company liquidations indicate what appears to be a steep climb in the number thereof in the fourth quarter of 2022.

The impact of this on small businesses in particular is cause for much concern.

SMEs in South Africa represent more than 98% of businesses, employing between 50% and 60% of the country’s workforce across all sectors. And while the GDP contribution from SMEs lags behind other regions, there’s no denying the importance of small businesses in the lives and futures of people who call this country home.

With no light, as yet, at the end of the load-shedding tunnel, small businesses have been forced to get creative and innovative in an attempt to address and minimise disruptions to operations and productivity that intermittent and persistent power outages, as well as decreased revenue, have caused.

In spite of their willingness to make a plan through possible investment in solar or backup generators (solutions which themselves can only realistically be resorted to by the select few given their high cost implications), many small businesses are struggling to keep their doors open, inspiring industry leaders to suggest the increase in companies liquidating in the last quarter of 2022 is the direct result of load-shedding.

As an expert practitioner in business rescue with more than a decade of experience, I’ve long been aware of the challenges small businesses face in putting measures in place to keep from closing.

Business rescue was formally introduced, with the passing of the Companies Act in 2008, as a framework for businesses in financial distress to restructure their operations and debts in an effort to return to financial viability. However, the complex and costly process thereof often renders it impossible for small businesses.

There is a pressing need for the business rescue industry as a whole to develop new solutions that will help to specifically assist distressed SMEs, ideally without the regulatory and cost implications that are prohibitive to them now. Additionally, the process must allow for a debt moratorium that is beneficial, while supervision is conducted by specialists in a cost-effective and professional way.

Another opportunity that may help to facilitate improved access to and increased adoption of business rescue services by financially distressed SMEs is a shift in the business rescue industry’s approach to training newcomers. Part of their time and skills development should perhaps be put to use in appointments to rescue proceedings for SMEs, while the companies they’re contracted to could claim skills development levies.

Education and access to information remain an integral part of improving the potentially successful impact of business rescue proceedings and the ability for small businesses to make use of such services.

To this end, the development of an online system or app could provide a guide to business rescue practices for SMMEs, as well as a means by which they would be able to access various tools that empower them to realistically gauge the state of their finances and reach out for assistance from business rescue practitioners.

While there’s a long way to go to address the hurdles for SMEs, there are a few ways for them to place themselves in a more stable position in the face of difficult operating conditions:

• One is to engage with their creditors as early as possible to try to negotiate better terms, while keeping them informed about what they can expect to be paid and by when.
• Another is to avoid living in a state of denial about the company and its financial position, instead opting to be proactive in understanding reality by managing the cash flow and resources almost daily.

It can be said of businesses of all sizes that the refusal to acknowledge the lay of the land can cause companies to wait until the last minute to seek help, which can render any aid, including a process such as business rescue, unviable and ultimately unsuccessful.

In the wake of a challenging fourth quarter of 2022, the reality is that we can expect to see more liquidations and business failings in the months to come. And it’s in the best interest of SMEs and the country that those with the knowledge to do so put their minds towards finding innovative and impactful solutions to assist SMEs.

My hope in writing this is to appeal to the industry at large to work together to do what it takes to give small businesses the best chance of making it through what promises to be a very challenging year.

* Beswick is a senior business rescue practitioner and a director of Fluence Capital 

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