Business Rescue Distress Management
The mining and manufacturing industry in South Africa has been struggling, Challenges of the 2019 financial year was conquered; The prospective opportunities of 2020 was exciting and motivating until it happened, a global economic crash, attributable to an uncontrollable pandemic.
Gideon Slabbert, Managing Director of Turnaround Rescue Solutions, has been involved in business turnaround in the manufacturing industry for quite some time and understands the dynamics of an engineering services company, whether it be an SMME or large Corporate.
Concerning ISO 9001:2015, a risk assessment needs to be executed at board level to develop an action plan to implement strategies that counter the effects of an external influence.
The companies act 71 of 2008 provides us with a definition for reckless trading which stipulates that insolvent trading could result in personal persecution of the board if proven by an affected party.
Business insolvency is when a companies liabilities exceed its assets(Market value). Acts of insolvency include any action in the form of debt repayment negotiation, extended payment terms or debt avoidance.
Turnaround Rescue Solutions has developed a risk assessment(downloadable from their website) designed for business leaders to ensure that a proper framework is established to guide their decision making.
Shareholding actions: The owners of securities are entitled to vote on special resolutions of significant transactions that include asset disposal and shareholding structure changes and any other matter as stipulated in the MOI.
Director actions: Directors of the business are the appointed officers employed to drive the business and ensure proper governance and compliance in the business. A Memorandum of Incorporation depicts the authority and guidelines of decision making. Business leaders are often complacent in ensuring these documents. When facing Board conflict, the directors nor the shareholders can pass a resolution, resulting in the possible unnecessary wind-up of the company. Make sure an MOI is drafted for your company and ensure specific attention is allocated to the voting and dispute resolution policies.
Financial Actions: Cash is the leading indicator when facing financial distress. As management, the debtor's collection report must be accurate, and every invoice payment date and goods received must be communicated. Debtors insurance can be helpful to protect the business and avoid excessive irrecoverable debts. Ensure legal professional drafts the business credit terms of sale.
The same applies to the creditors listing report. It often occurs that goods received notes aren't booked into the system. Make sure that your accounting division scrutinises every invoice received.
Ensure that the appointed public officer receives a SARS statement of account so that the management is aware of the position with SARS and that all declarations are filed and paid over to SARS. The same applies to all provident and pension funds, verify that all payments due have been made by the business.
Credit applications are often neglected and have a significant binding effect on the business. Ensure that the accounting department has a valid copy of all credit/financing applications. Credit applications often include surety agreements that are signed by the directors. It is important to know where surety or cession of assets have been granted.
Scrutinise the bank statements and ensure that all subscriptions and debit orders being deducted from the bank account have been evaluated. Usually, these transactions have a 30-day waiting period and require swift cancellation action. Develop a sixteen-week cashflow statement, detailing all income and expenses by doing this, the cash flow planning will highlight where the potential issues will be, and it will highlight the magnitude of the issues to the board.
Sales Management actions: When facing business distress, Sales management is one of the most crucial elements that should be monitored in parallel with financial and operational management. Post-COVID-19, management should execute a situational analysis of the sales pipeline, monitoring the status of pending vs open quotations, new purchase orders and late purchase orders.
Every Sales manager should make it his priority to contact all active customers and asses spending potential as well as payment ability. During this assessment, the sales team should scout for new opportunities and identify new customers as a result of the COVID-19 pandemic.
Procurement actions: Business procurement practices are crucial to a successful value chain. Timeous delivered goods at the right price and right quality support the production team in ensuring efficient production of goods. When in financial distress, raw materials are often purchase on a cash basis. Businesses must avoid transferring cash if they are not certain that they will receive goods as specified on the original purchase order. When using new suppliers, ensure that suppliers are audited and their ability to deliver goods have been evaluated.
Operational Management Actions: When in distress, management needs to evaluate what orders can be delivered with the least amount of inputs that can generate the highest profitability. Deliveries need to be negotiated with customer to avoid bottleneck situations. Implement measures or Key-Performance-Indicators that enhance efficiency monitoring of staff and machines. Ensure that shifts are optimised, and overtime is minimised by implementing performance bonuses. Evaluate your assets and sell obsolete equipment in exchange for plant upgrades. Execute planned maintenance strategies when the opportunity presents itself as unplanned machine breakdowns can be costly and detrimental to the business.
Human resource management: The assessment of the employment practices of a distressed ventured is crucial as this is usually one of the first areas where optimisation can be implemented by assessing the skills and capabilities of all staff and benchmarking their remuneration to the market. Often businesses employ long service staff that are not necessarily as efficient as they were. Staff reshuffling is a very effective way of generating new labour efficiency.
In conclusion, Business leaders facing financial distress are compelled to implement a reactive distress strategy. Business Rescue is a mechanism that can afford companies and closed corporations with a moratorium of all assets while restructuring the business affairs. The success of such proceedings is dependant on the board's ability to welcome independent intervention in abnormal circumstances.