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SMEs response to COVID-19 crisis in Kenya

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ABDI DUBAT: The Covid-19 pandemic has placed businesses in uncharted territory. Its effect on the global economy is baffling especially because of the speed of its effects. The virus outbreak has become one of the biggest threats to the global economy. Markets are plunging and major institutions cutting their economic forecast.

Efforts to contain the virus through widespread lock downs, social distancing and stay at home calls have caused high levels of disruption to economies. Huge sections of economies have shut down: travel, hospitality (tourism, restaurants and hotels), and many non-essential service industries. The massive job loss expected during and after this pandemic will result in reduced purchasing power with a devastating resultant ripple effect on the economy.

Abdi Dubat - Managing Partner at Umuro Wario and Associates - SME Covid-19 - Bizna
Abdi Dubat – Managing Partner at Umuro Wario and Associates – SME Covid-19 – Bizna

In Kenya, the situation is expected to be worse. With a fragile economy and many businesses and employees operating in the MSMEs sector, the effects will be severe and one that can lead to the total collapse of many small businesses and massive job losses.

Government and policy makers will be challenged to provide solutions to the problem but with a looming pandemic and stress on our healthcare system not to mention empty coffers, the solutions may not be sufficient to save small businesses.

What can small businesses do at this critical point to ensure survival in the face of this pandemic? Surely, they cannot and should not just sit and hope for the best. While the suggestions are not exhaustive, they could be of help in one way or another. These include.

1. Take stock of the situation and assess its impact on your business. Many small businesses are not good at taking stock of the environment around them and effects of events on their businesses. At this time, its critical for these businesses to understand that it’s not business as usual and assess how the current situation is affecting their operations. What specific aspects of the business are taking the greatest hit and what is the remedy. Is there a significant decline in sales or a disruption of our supply chain? Can we find small solutions to slow down the effect on our operations?

2. Do we need a temporary or even permanent change in the business model? With restrictions on movement of people, many businesses are exploring other ways of survival like online sales of their products, delivery mechanism to the customer, securing supply chains for key materials etc. Can the business adapt to this coping mechanism and be flexible to ensure their survival beyond this pandemic?

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3. Critical assessment of cash flows and liquidity. Cash flows are critical to small businesses and a great challenge even without the Covid-19. A good analysis of the current status of cash flows and immediate liquidity requirements could be the difference between survival and death. Once you take stock of your cash flows, you can then plan how to allocate these available cash to necessary expenditure in the near future and not exhaust it all immediately. Considering the situation could last for a few months, planning your cash flows prudently may save the business from collapse.

4. Human capital management; It’s becoming clear that the full time workforce culture is not sustainable under these circumstances. Businesses are letting their employees stay at home to protect them from Covid-19 and obey the government directives to stay at home. The utilization of your human capital during this time may be the key to keeping the business alive. If employees can productively work from home and continue to generate revenues for the business, then that must be the strategy to adopt.

Empowering and facilitating their productivity offsite is critical and the provision of working tools like computers, laptops, iPad and if necessary mobile WIFI gadgets will increase their productivity while at home. However, for some businesses, this may not be possible, and a decision must be made especially if the business cannot sustain payroll at this time.

Discussions can be held with the employees so that some could be put on half salary or unpaid leave depending on their contracts. This will cushion the company from huge payroll liability that it cannot afford. However, communication of this decision and the fact that its temporary is key to retain critical skills in the company.

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5. Discussions with debtors and creditors; Considering this is a widespread pandemic that affects other businesses as well, it is necessary to hold discussions with debtors to see their ability to pay in order to boost the cash flows of the company. The business must be prepared to receive negative feedback with respect to debt collections and contingency measure should be though through. Having conversations to defer payment of creditors is also important to manage the business cash flows and maintain relationships. Credit terms can be negotiated accordingly.

6. Minimize unnecessary expenses during this time and ensure the business overheads are manageable and scale back on planned expansions and capital expenditure.

7. Banks and lenders; Majority of small businesses will have debt either from commercial banks or other lenders. It is critical that discussions are held with these institutions on principal and interest repayments during this time. The business can renegotiate the terms of the facilities and request for a moratorium on the repayments for a period of time until the crisis is over. Where necessary the conversation could be extended to include additional facilities that could improve the liquidity of the business to ride the wave of corona.

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8. Tenancy and other agreements; During this difficult time, negotiations with landlords and other creditors is a route that can be pursued to reduce the burden of monthly payments to the business. It’s not automatic that this will work but if good relationships were cultivated before this pandemic, then it may yield results.

9. Statutory deductions; depending on the severity of the cash flow problem faced by the business, statutory deductions like PAYE, VAT, NSSF, NHIF etc. could be deferred. This may attract penalties and interest, but it could be necessary to save the business and manage cash flows.

10. Engage policy makers and government; the government of Kenya and many other institutions are currently undertaking quick surveys to analyze the impact of Covid-19 on businesses in Kenya. Use any channel for businesses to engage the government on what steps it can take to cushion them during this hard time.

About the author

 

Abdi Dubat - Managing Partner at Umuro Wario and Associates - SME Covid-19 - Bizna
Abdi Dubat – Managing Partner at Umuro Wario and Associates – SME Covid-19 – Bizna

Abdi is a highly Experienced Auditor and professional consultant with unparalleled expertise in tax advisory, corporate finance, audit of corporate and government institutions, business strategy formulation and implementation. policy and governance, donor-funded agency compliance, SME support including review of business process, setting up systemic Structured and financial management training.

Abdi is an exemplary leader with an extensive track-record in leading dynamic across the region, delivering stellar results in number of complex projects undertaken.

He has over 20 years’ experience in the field of Audit, Tax, advisory and consultancy providing services to a wide range of clients in different industries and the region.

Abdi is a qualified accountant (FCCA) and a CPA (K). He a member of the association of Chartered Certified Accountants (ACCA), UK and is a practicing member of the Institute of Certified Public Accountants of Kenya (ICPAK).

Abdi is currently pursuing his PHD (Accounting) at the University of Nairobi and holds an MBA (Strategic Management) and a Bachelor of Commerce (Finance) from the same university.

Abdi is the Managing Partner of Umuro Wario and Associates.

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