While business distress was on the rise prior to the outbreak of COVID-19, the pandemic has threatened to push already struggling businesses over the edge, and as a result, a significant amount of job losses are forecast across all sectors of the economy.

In unprecedented moves, struggling retailer Edcon announced plans to shed 22,000 employees (almost half its workforce), while over 3,000 job losses are on the cards for SAA. At the same time, national broadcaster SABC has announced plans to retrench 600 employees and petrochemical giant Sasol has announced plans to cut staff. 

Sandra Beswick, Director at financial and strategic advisory company Fluence Capital, says companies that headed into the lockdown without a financial cushion have been plunged further into a difficult situation, with many feeling the only way to recover lost income is through staff retrenchments.

“What we are finding, is that a number of businesses are using COVID-19 as an excuse to retrench staff. But while cutting staff may seem like an easy solution, it should actually be your last resort. By laying off staff you not only risk reduced employee engagement, but your company’s profitability and reputation could be damaged. It’s not worth losing years worth of knowledge and experience that will be very difficult to replace when and if things stabilize. We always encourage our clients to look at other ways of cutting costs in the short-term.” 

Earlier in June, National Treasury forecasted that the impact of the virus and resulting lockdown period, could lead to job losses of between 690,000 and 1.79 million. 

Meanwhile, Nedbank forecasts that 1.6 million jobs will be shed in the country in 2020, with the bulk of the jobs lost in the first half of the year.

Sandra says the various government measures implemented to combat the impact of the Coronavirus are simply delaying the inevitable for many businesses who were already on the verge of collapse prior to the onset of the pandemic. She says this is compounded by the fact that decision makers and leadership in a business do not always have the sense of how the business is performing. This can be either from ignoring or not knowing how to recognize the warning signs that the business is facing financial distress. 

“Most business owners and leaders must first and foremost acknowledge there is a problem and should obtain an external opinion on where it stands and the issues facing it.”

Sandra says as the economy begins to slowly emerge from lockdown, the stark reality is that business will not go on as usual for hundreds of companies, meaning they need to strategically cut costs where they can.

8 effective ways to cut costs include:

1. Temporary salary cuts or working hours

Trimming salary costs does not have to mean retrenchments. Businesses can attempt to mitigate the impact from the COVID-19 pandemic by temporarily cutting staff salaries or hours which can help ease fixed costs and prevent job losses. 

“There is no set amount on how salaries should be cut. Rather, the decision must be based on what’s right for the business. Many companies have however adopted a top-down approach. Employers can then attempt to recover a portion of the reduced salaries by applying to the Temporary Employee Relief Scheme via the UIF.”

2. Stop paying for things you don’t  need

Conduct a thorough audit of all your overhead costs and cut anything you don’t deem absolutely necessary. Freeze all company perks, ‘nice to haves’, subscriptions and unnecessary travel. Consider going green and implementing eco-friendly replacements for your utilities and process to lower expenses including metred electricity, solar heating and paperless systems. 

3. Conduct  a deep dive on your assets 

Selling off non-essential assets that you don’t need or are not considered essential to your business can bring in a much-needed cash flow injection. 

4. Communication is key

Being clear and transparent about your business position with key stakeholders will go a long way in helping you manage your debts. These are unprecedented times, and creditors are likely to understand if you’re unable to repay at the rate previously agreed. Your business stopping to trade isn’t good business for them either, so they will most likely be more flexible than you think. Bigger expenses, such as rent and bonds should also be negotiated. 

5. The early bird catches the worm

 Focus on fostering strong relationships with your suppliers by staying on top of your expenses and paying your invoices as early as possible. With many suppliers offering incentives and discounts for early payments, this is a simple way to cut costs. 

6. Negotiate with suppliers

If cash flow is tight, remain transparent and open at all times and try to negotiate with your suppliers. Alternatively, consider switching to vendors that are more cost-effective. Due to COVID-19 many organisations are offering discounts and incentives, meaning it’s an ideal time to change over. When signing supplier contracts, make sure you do not sign contracts for longer than a year. 

7.Implement a hiring freeze

Implement a hiring freeze across your organisation and if you have positions that need to be filled urgently, consider redeploying and reskilling your current team you feel could be better utilized elsewhere. If you utilize the services of contractors, consultants and part-time staff, consider reviewing their services for the time being. 

8. Embrace remote working 

Rent on your business premises is likely your biggest monthly outlay. The Coronavirus pandemic has made working from home a reality for millions globally, leaving offices empty for months on end. This change is expected to stick long after the virus has disappeared, meaning the exorbitant rental you have been paying for your office space can be reduced. Either look to downsize by keeping essential staff on site and getting the rest of your team to work remotely, or, if you and your team have been able to successfully work remotely throughout lockdown, perhaps it’s worth considering setting up your entire operation virtually. 

Conclusion

The downturn in the South African economy and the COVID-19 crisis has led to many companies across all sectors, facing extreme financial distress. These unpredictable times are unprecedented and could lead to job losses and failure of entities. 

A company who is suffering distress has a cumulative negative impact on their suppliers/creditors, employees and their families, your family filtering all the way down the economic cycle of the country. It takes courage and guts to firstly admit there is a problem and then do something about it by facing the issues head-on. The above are some of the ways business owners can keep costs down, while avoiding retrenchments. 

“It is important to remember that once the pandemic has subsided, companies will be remembered by their leaders’ decisions. And those who adopt alternative cost solutions in order to retain employees, will certainly come out stronger.”