The COVID-19 crisis has been creating tremors that are being felt on an international scale by businesses as they look to safeguard their future in terms of cashflow and liquidity.
Cashflow forms the lifeblood of small- and medium-sized businesses and once this is threatened, an organisation can soon find itself in troubled waters. However, there are solutions that business leaders, including directors and shareholders, can aim at in order to remain solvent, enhance cashflow, and propel forward.
Firstly, restructuring is not inherently negative. There are many reasons why it can be a positive course of action. Businesses do not necessarily have to be under financial duress, they may simply need to raise capital, streamline cash flow, address profitability, among many other reasons.
Restructuring can assist an organisation in identifying the key issues challenging liquidity and operational efficiency whilst presenting possible solutions. From this point, it is then possible to begin with the implementation of a new structure.
Reacting to change
Retail and hospitality are two sectors which have been hit heavily by the global health crisis. In these industries, the need to restructure and re-organise their processes has never been higher.
Prior to the pandemic, no precedent existed to build a response framework around and with the virus revolving at such speed, and it was difficult to be anything other than reactive. Over the past few months, we have seen a major shift in the way that the retail environment operates. With the current economic predictions, we will likely see further changes over the coming months as new structures fully take form.
The retailers who are still enjoying success have done so through using the current landscape as an opportunity to streamline or reduce the number of outlets or stores. However, this did not happen without some negative consequences, as a reduction in locations also means cutting jobs and losing staff.
Some of the more successful retailers have been supermarkets, which benefited from their status as essential businesses excluded from government lockdowns and were quick to implement safety procedures for both staff and customers alike.
The changes made through restructuring have already greatly assisted recovery and continued operation of many organisations. Without quick decision making and steps to restructure, many businesses would have failed to maintain a position in the market. Bars and restaurants have now opened with a completely different operational system to the pre-pandemic environment.
The automotive industry has also been amongst those that had to adjust to the sudden change. An oversupply of produced vehicles met with a low demand left a huge impact and when combined with the shifting consumer desire for electric vehicles, has sped up an already changing industry. This accelerated process will likely lead to transforming how consumers purchase vehicles, with showrooms being less important as time progresses.
Beyond the new normal
Globally, we have seen a significant increase in need and interest for restructuring services during the initial shutdown, but what do the next 18 months look like? The unprecedented support from financial institutions has eased demand recently, although as different countries come in and out of lockdown, this demand is expected to increase further.
Many banks and financial institutions share the belief that this is the calm before the storm. Since governments cannot support economies and businesses indefinitely, it stands to reason that the service of restructuring will see high demand over the coming months. This coincides with the fact that all cash borrowed to help weather the COVID-19 storm will become repayable, requiring tough decisions from business owners. One of the more interesting side effects of the crisis has been the shift towards working from home. Undoubtedly, this will have a major impact on real estate for office space within city centres.
Economies dipping into recession, coupled with rising unemployment, are also likely to have a negative impact on the residential property market. However, the significant increase in online shopping will almost certainly lead to an increased demand of warehousing.
Another effect of working from home has been that more organisations are now recognising that they can maintain efficiency while their staff is working remotely, which is likely to lead to a reduction in the use of office space, even after the pandemic.
There are already many examples of organisations implementing hot desk arrangements for staff to work in a smaller office a few days a week. People working from home will certainly affect day-to-day retail operations, as well as service-based industries that are predicated on people buying food and beverages during the day. Pop-up coffee houses, independent bakeries, and similar venues are likely to feel this impact in a significant way.
The core focus of organisations moving forward should not be to dwell on the negative circumstances but rather to look towards finding positive solutions. There are many intelligent ways to reorganise considering the current climate, some of which will involve tough decisions.
By Le Khanh Lam – Partner, RSM Vietnam
Vietnam Investment Review