Rashmi Dube: Can SMEs stop the wolf coming to their door?

The current pandemic is of course a massive disruption that has accelerated the imagination of businesses and digital transformation. Our new world will be a hybrid of pre-2020 and post Covid-19.

Every size of business and industry are being affected, albeit in different ways, and those that are taking stock of what is in front of us will invite experts to help turnaround and transform their businesses in order to embrace the present and future.

Our binary way of working will be redundant, but the question on most insolvency practitioners’ lips is: how many businesses will not recover and fold?

Or fail to ask for help now when they have time to turn the business around out of fear that they have no money for this kind of assistance? Looking into the short term, most SMEs will run out of funds if not at the end of this month, then in June.

It is not enough for businesses to say we are waiting for the Government to provide us with their exit plan. We have to plan our own exit based upon information provided in real time that is likely to change our approach and decisions almost on a daily basis.

Unemployment is returning and we are trying to avoid economic scarring. A good investment and a logical way forward would be infrastructure and could help spearhead a recovery. However, the biggest concern both from an economic perspective and the wider community is the small medium enterprise (SME) businesses, particularly those in hospitality.

These are unlikely to have backing from any investors or stakeholders to adapt their restaurants, bars and clubs, and given they are likely to be the last to come out of lockdown and reopen fully, they are likely to suffer the hardest. If their business enters into some form of insolvency, they will perforate a gap through our communities, where the independents provide a social and support system for many communities. The effect will be felt for years to come.

So, the question I am really asking this week is are the insolvency practitioners, right? Are we on the brink of a tsunami of insolvencies? Can anything be done to prevent this – if one is coming?

It is easy to see that some sectors are simply not going to survive and will be facing some form of administration such as travel and, in particular, airlines.

Just look at the struggle that has been documented recently with Virgin Atlantic – businesses are looking for a saviour to come in and save the day, and if Richard Branson is struggling to find one, what hope is there for the SME who is drowning and not sure who and where to ask for help?

Private equity houses and angel investors may have their fill of choices to pick from, but the turnaround specialist they place in the company may not be to everyone’s cup of tea. All of which forces the business to face the new hybrid reality before the owner/manager has had time to adjust to the idea. But are these in the minority?

According to recent research carried out by Begbies Traynor, at the end of March, a record 509,000 businesses were in significant distress. It is believed that this figure is only the tip of the iceberg. If this is the case, it paints a rather grim picture. With ever increasing pressure, and not enough actual turnaround and restructuring specialists around, it maybe that the companies will turn to insolvency practitioners.

Most businesses will want to carry on and will hope that the emergency loans from the Government will enable them to buy some time, offer employment and continue to trade.

I suppose I am left with the question of how radical a shake-up of the insolvency legalisation and rules is the Government going to make and will that stop the wolf coming to the door?