Article:

Rethinking business resilience and success through COVID-19

23 October 2020

Andrew Fielding , National Leader, Business Restructuring |
Adam Myers , Partner, Corporate Finance |

It's no secret that COVID-19 has forced companies into high-level changes and adjustments, challenging these businesses' very survival. At the same time, the pandemic and crisis period it has ushered in also signal that it is time for leaders to rethink the ways they are achieving resilience and success, and even how they define those ideas.

In the recent episode of our In Business with BDO podcast, our National Leader, Business Restructuring Andrew Fielding and Partner, Corporate Finance Adam Myers, delved into this matter, taking you through ways to turn your business around within a brand-new operating environment.

The following are a few of their insights:

What are the defining operational features of companies that have proven resilient over the months of the pandemic thus far?

Businesses that are doing well — or simply surviving — are those that have engaged in planning. They have researched available government grants and subsidies and incorporated them into plans that extend for six or 12 months. They have also crafted scenarios based on expected return of income. To do this, businesses need current financial information and good relationships with key stakeholders — financiers, suppliers and clients alike.

Companies tied to international travel have had to wind up operations, due to a complete collapse of demand. Organisations in this field that have sought to survive have needed to make a complete pivot, reassigning personnel and working in the domestic market while planning for the emergence of a new normal. They will emerge from the pandemic transformed into more diversified models.

How much resilience can be attributed to government stimulus packages?

The JobKeeper subsidy and state grants and loans, some exceeding $250,000, have doubtless helped companies keep their doors open. However, it can be hard to determine how much of an impact these have had, with other financial stats creating a mixed picture. For instance, credit card debt nationwide is falling and bank deposits are increasing. Businesses planning for the end of stimulus packages and using the current moment as a respite to think about the future are well equipped to move forward and survive.

Is a wave of insolvency, acquisitions and mergers inevitable?

Companies are not waiting for the end of stimulus funds — M&A activity is already going strong, with initial public offerings also picking up steam. Brokers are feeling optimistic about the opportunities in this space. Bankers and lawyers do expect an ‘avalanche’ of insolvency, perhaps beginning in March 2021. The end of JobKeeper will likely trigger somewhat artificial closures, as companies that would have shuttered even without COVID-19 have been kept open by the stimulus.

How long will the impacts of the disruption go on?

It's hard to say what post-COVID opening will bring, as fighting the pandemic goes in stages. With the newer strategy of contact tracing and localised shutdowns taking place, the key for companies and consumers is to avoid further hard closures as Victoria had to endure. High-risk, high-touch industries stand to be the last to return. Companies have planned intelligently and learned to pivot during different types of lockdowns, not making sweeping moves such as cutting and rehiring staff.

The long-tail impacts are highly differentiated by industry. While farming and mining kept producing at the height of the crisis, industries such as tourism may not be able to return to their previous levels quickly even with the widespread availability of a vaccine. Australia's status as the world's largest island and a relatively safe place may represent an opportunity for repositioning in industries such as international filmmaking.

Are there other advantages or opportunities to be gained?

As the old saying goes, "never waste a crisis." Businesses can speak openly with all the parties in their financial ecosystems to create plans for shared success. Private equity companies are also on the hunt for under-capitalised businesses as investment targets. High-quality tourism businesses reaching the end of their lines of credit may be ideal for this purpose. Large retailers may also see a good chance to renegotiate their leases.

How will the global landscape affect Australian businesses?

Companies without high-human touchpoints are set to return to a sort of normal relatively quickly, including international shipping and supply chain leaders. U.S. private equity firms and investors around the world are looking to Australia as a country with a relatively strong pandemic response, one that portends business opportunity.

How will state border closures evolve across the next stage?

States such as WA, with few border towns, have had a relatively easy time locking down interstate travel, though hubs such as Perth Airport have had to rethink their business models. In other states, each region will need to create a unique policy that suits its own commercial and public health needs. There is no one-size-fits-all answer.

What is the key takeaway for this moment?

Companies will have to show courage and take advantage of opportunities, not treading water. They must understand their dealers, suppliers and clients. Testing assumptions, understanding key drivers and planning for various scenarios have always been important, and they are now imperative.

Cash is now king. Businesses must understand their cash flow and relationships within their industries. Putting time into understanding the position of others is set to be invaluable going forward.

The pandemic has made people have to understand their businesses as never before. If you need to talk to someone about opportunities and resilience in the new normal, contact your BDO Adviser.