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This article was first published in the May 2020 Africa edition of
Accounting and Business magazine.

As cases of Covid-19 mounted in South Africa and the lockdown took hold, Johnny Eliades FCCA was spending up to 15 hours a day on the phone to his SME clients. His staff around the country may have been confined to their homes but they were still open for business – even if many clients had been forced to shut.

‘I regard myself as an essential service,’ Eliades says. ‘People are panicking. We are consulting every day with small business owners who ask how can I pay my employees, and how do I pay my landlord when I have zero turnover?’

When he was not on the phone to his clients, Eliades, CEO of consulting business IE international Group, was on the phone on their behalf, calling their landlords, negotiating aggressively for reduced rentals and deferred payments, and trying to persuade them to adopt a more ‘humane’ approach.

‘When this thing hit, I immediately started applying for government assistance for my clients,’ he says. ‘Small business is the livelihood of this country.’
Eliades could not have put it better. There are 2.3 million small and medium-sized enterprises (SMEs) in South Africa – that’s 98% of the country’s entire company count. And the emphasis is on the small rather than the medium end of the SME size spectrum. Some 66% of all the nation’s enterprises are micro businesses (10 or fewer employees), 26% are small businesses (up to 50 staff), and 6% are medium-sized (staff complements between 51 and 200); just 2% are classified as large businesses, employing more than 200 people.
The coronavirus pandemic and the initial 21-day lockdown in March and April followed on from a technical recession that hit the country late last year. Just as the lockdown began, ratings agency Moody’s downgraded the country to junk.

Brutal

The impacts of these black swan and systemic events can be ‘brutal’, says Jo-Ann Pöhl ACCA, group CFO of tech company iOCO. ‘What business looks like is going to change substantially. Well-run companies, with processes and controls in place and good relationships with banks and revenue authorities, will be better prepared to weather the storm. Those that have operated close to the breadline are going to feel the strain.’

Rajesh Mahabeer FCCA, CEO of accounting firm Trilord, says that even before the pandemic struck and the country’s credit was downgraded, the economy was in bad shape and many SMEs ‘were going into business rescue and liquidation. Most were already in survival mode before this lockdown. It will be a far worse economic environment than before.’

Mahabeer says SMEs are going to find it extremely difficult to generate cash reserves through conventional lending institutions, and state lenders such as the National Empowerment Fund and the Industrial Development Corporation are going to be ‘seriously challenged in terms of demand and available funds’.
He adds: ‘The smartest thinkers, who work with commitment and passion, and who work aggressively, will survive. Those SMEs who come out of this thinking it is business as usual will fast find themselves on a slippery slope. The fundamentals, challenges and the way we exploit resources have all changed, and SMEs will survive through the competence, experience and creative thinking of their leaders.’

For Eliades, Pöhl and Mahabeer, there is plenty accountants can do to help SMEs weather this perfect storm.

Eliades has swung into top gear, applying for assistance for his clients from a variety of government programmes and facilities on offer, including the SMME relief finance facility and a number of tax deferral measures including employee tax and provisional tax.

Mahabeer says the first strategy ‘must be survival, and to save the business from business rescue or liquidation’. He adds: ‘Accountants will need to be attentive, have empathy and compassion, and provide extraordinary support for their clients on a daily or weekly basis. Helping a client work through the survival phase may take up to two years.

‘Accountants must also be aware of the nature of the client’s business and grasp opportunities in an innovative way. They will need to assist with supply chain efficiencies and negotiate aggressively with suppliers so their clients can buy at competitive rates and on extended payment terms.’

Empathy essential

But more crucially, says Mahabeer, accountants must help business owners and their employees to ‘develop a relationship of empathy and support for each other. Get employees on board to negotiate salary reductions and ask them to extend themselves to save the business. It is necessary to have loyal and committed employees doing all they can to help the business trade out of distress. It will give the business every chance at survival.

‘Business leaders need to be more innovative and think of how they can do all this without requiring additional cash injections,' he says. 'With the support of their accountants, they must become single-minded about saving the business. It’s going to be tough, difficult and stressful, but with the right commitment it will be possible.’

Pöhl advises that accountants should act as a sounding board in support of business owners, empathising with them about the impact on their business, themselves and their people, as it is often lonely at the top as a small business owner. This includes helping ensure finances are up to date, and that processes are in place so that cashflow scenarios can be considered given the uncertainty in the market.

'This is key to establishing what to focus on, what can be done and what a longer term outlook may look like,' she says. ‘It is a real opportunity to make an impact where it matters most, as a partner to small business owners – for example in their applications to the Unemployment Insurance Fund, preparing for conversations with their bankers, considerations around the Solidarity Fund, and structuring shorter working weeks to save both jobs and businesses.

‘Accountants can do these things less emotively; small business owners are emotionally invested in their businesses – their passion helps drive their success. Accountants can be a safe and credible sounding board, supporting tough decision-making which is absolutely critical at the moment.’

Eliades says it's about encouraing clients to focus on solutions: ‘It’s an emotional thing. We have two goals at the moment: to look after our businesses and look after their employees.’

Nicki Güles, journalist in Johannesburg