The COVID-19 crisis is 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 water. However, there are solutions that business leaders, including directors and shareholders can take in order remain solvent, enhance cashflow and propel forward into the next normal.
Firstly, it should be made clear that restructuring is not inherently negative. There are many reasons why it can actually be a positive course of action to take. Businesses do not necessarily have to be under financial duress, they may simply need to raise capital, streamline cash flow, address operational concerns regarding profitability – and there are 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 imminent change
Retail and hospitality represent two sectors, which have been hit heavily by the COVID19 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, 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. This is not without some negative consequences, as a reduction in locations will have meant cutting jobs and losing staff. Some of the more successful retailers have been supermarkets, which benefited from being exempt from locked down and were quick to implement safety procedures for both staff and customers alike.
The changes made through restructuring have already greatly assisted with recovery and continued operation of many organisations. Without quick decision making and taking 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-COVID-19 environment.
The automotive industry has also been amongst those that has had to adjust to the sudden change. An oversupply of produced vehicles met with a low demand, which has had a huge impact and when combined with the shifting consumer desire for electric vehicles, has sped up the already changing industry. This accelerated process will likely lead to transforming how consumers purchase vehicles, with showrooms being less important as time progresses.
The next normal and beyond
Globally, we have seen a significant increase in need and interest for restructuring services during the initial shutdown, but what does the next 18 months look like? The unprecedented support from government 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 the 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 the cash borrowed to help weather the COVID19 storm will become repayable, requiring tough decisions from business owners.
One of the more interesting side effects of COVID19 has been the switch to working from home. Undoubtably this will have a major impact on real estate for office space within city centre locations. 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 more organisations recognising that they can maintain efficiency with staff working remotely, which is likely to lead to a reduction in the use of office space post-COVID. 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 more 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.
Resolution in restructuring
The core focus of organisations moving forward should not be to dwell on the negative circumstances being faced, but rather to look towards finding positive solutions. There are many intelligent ways to re-organise considering the current climate, some of which will involve tough decisions that will ultimately see hard times to come before recovery.