Small businesses marked red

Naturally, small to medium enterprise businesses (SMEs) tend to have a high failure rate, and with the current Covid-19 pandemic, many are struggling to cope. PricewaterhouseCoopers PNG entrepreneurial and private business director MICHAEL COLLINS discusses with business reporter PETER ESILA what SMEs and other businesses need to do.

Q: Based on your studies and research, what are some of the steps/actions that businesses should take to ensure business continuity in such difficult times? What is a business continuity plan?
COLLINS: The key considerations for management during this period of crisis are to:

• Protect your people and plan your workforce to sustain critical activities;
• Maintain business continuity and protect your supply chain;
• Provide clarity and clear communication to your employees and stakeholders and enable business continuity;
• Gain insight and assess your exposure to risk;
• Balance customer care with commercial priorities; and,
• Review all your core internal functions to ensure business continuity and resilience.

It is important that businesses review and update their forecasts and working capital plans, consider their contractual obligations and any options or levers that may be able to exercise, look at access to additional funding or debt repayment relief, availability of government or statutory authority incentives or relief measures and resilience of essential technology infrastructure.
Scenario analysis can be used to map out the potential impacts of different events or circumstances and response options.
Further information on actions that business leaders can take are available from PwC global crisis centre at our website.
We recently conducted a survey of Papua New Guinea business leaders which showed that some of the key steps being implemented in response to Covid-19 threat includes:

• Implementing cost containment strategies;
• Establishing a crisis management team and plan;
• Revising sales strategy, modelling the impact scenarios and cash flow projections; and,
• Performing an operational risk assessment and supply chain impact assessment.

A business continuity plan is a document that sets out how the business will prevent and recover from threats to the operation of the business.
The plan sets out how business personnel and assets are protected and able to function as effectively as possible in the event of a disaster.

Q: How can a business/SME which has collapsed, suffered from a crisis like this, recover? What is the success rate?
By their very nature, SMEs tend to have a high failure rate, mainly due to inadequate capital or access to funding.
This current crisis is unlike anything seen in recent times and most businesses are experiencing a decline in sales and slower payments from debtors which has put additional strain on cash flow.
What we did learn from the financial crisis in 2008 is that small businesses were impacted more than larger firms.
Given the current level of uncertainty facing PNG and the global community, it is difficult to say how a business or SME that has collapsed will recover at the end of this crisis.

However, those SMEs that can respond and adapt quickly to the current situation, focus on the key differentials that made them successful in the first place and demonstrate resilience, resourcefulness and entrepreneurial drive, will stand the best chance of recovering.
A starting point is to develop or review their plan to include the considerations and actions previously mentioned (set out above).
Once the plan is developed or reviewed, I suggest discussing the plan and situation with their trusted business advisors to gain further insights on aspects of the plan.
Where there are issues relating to current and future payments for rent, wages, loan repayments, power, insurance, etc, we recommend having discussions directly with the landlord, employees, bank or other service providers.
Before having these discussions, we recommend that a plan is developed on what are the key points and messages that need to be communicated and how the key points and messages are to be delivered.
In most instances, we have observed that the other party has a good understanding of the current situation and is prepared to actively work with business to find a workable solution for both parties.

Q: Have you been providing some service/advice to clients in PNG regarding this area in this SoE?
We have been providing advice and assistance to clients in PNG through this current crisis.
In our entrepreneurial and private business team, we have been having discussions with clients in relation to:

• Ownership issues such as governance (both corporate and family) and wealth management (asset protection) and succession; and,
• Business issues such as digital transformation (operational considerations), capital (liquidity and funding), risk and regulation (stakeholder management), talent (impact on workforce), profitability and growth.

Q: Is there a possibility of more people losing jobs in PNG?
These are uncertain times and companies are considering all options to ensure that they remain in business and can recover after the crisis is over.
This includes a range of options for scaling back employees, including extended paid or unpaid leave, part time or alternate shift work and, where practical, remote working options.
Sending staff home on leave without pay, or making staff redundant, will always be a last resort and governments around the world have been implementing measures to protect the employment base.
However, it is possible that people could lose their jobs in PNG if the current SoE is prolonged (globally the rates of unemployment are increasing as a result of the current crisis).
One message that is consistently coming through in discussions with clients in PNG is that there is an understanding of how important employment is and a willingness to keep people in jobs for as long as possible.