Covid-19 is here to stay for some time. I do not mean to sound pessimistic but I think the waves it is creating will leave an indelible mark on our lives, particularly the way we work and do things. And, in the short term, for those of our clients, partners and friends in business, the question in everyone’s mind is “How do we avert a financial crisis in our business in the wake of the Covid-19 disruption?”

A financial crisis is where you run out of cash to keep yourself and your operations going. So, the three things that you must do in times like this when it comes to cash: conserve, conserve and conserve. Now, let’s see how we can do that.

1. Target Expenses Like an Eagle for Avoidable Cost

Check all your activities. Drill down expenses because expense means cash outflow. If your chart of accounts in the accounting system that you are using is meticulous and thoughtfully designed, you can simply drill down and identify the avoidable cost in your operations. 

Stop it where you can and see your cash reserves grow.

Having said that, take care to make a distinction between operating expenses and investments or capital expenditure. Operating expenses generally fall between fixed cost and variable cost. The distinction is signi?cant because variable cost increases or decreases upon the level of operating activity, whereas fixed cost remains more or less constant irrespective of whether your operations increases or reduces up to a certain range of activity. Therefore, your focus must be on avoiding or reducing fixed costs such as rental and lease payments.

Variable cost, on the other hand, will reduce proportionately as your operations decrease or are scaled down. For example, selling costs such as salesmen's commission and travelling claims will decrease or increase as sales decrease or increase. Therefore, by drilling down from your accounting software, you could sift out those that show a disproportionate variance and investigate to avoid it if justified.

Investment expenses or capital expenditure are for near term strategic purposes which must be carefully considered before a decision to avoid or eliminate is made as it may have a significant impact on the ability of the company to sustain future growth and prospects.

2. Collect, Collect and Collect

The next point of attack should be in generating extra cash. How can this be done? Simple, focus on collecting all receivables, whether originating from prior sales or otherwise like in friendly advances made but not yet returned. Provide a generous discount if you have to, because every Ringgit collected matters now.

3. Sales, Sales, Sales

Create good new sales, preferably cash sales. Make this a priority because, in times like this—where there is a slowdown—your organisation is bound to have excess capacity. Instead of terminating and confirming their fears, a better approach would be to redeploy them on income-generating activities such as developing a new market or channel partners to develop new sales. They may surprise you particularly with their savviness in social media and word-of-mouth marketing skills. And you can bet that when the economy turns, you would have gained their trust and loyalty to an even greater level.

4. Customers, Customers and Customers

Be extra nice to customers, because they are probably going through the very anxieties that you are going through such as cash?ow concerns and more sales to ride through the period. Therefore, suggest payment schedules and other ?exible terms even before they ask you. They are sure to remember you for your considerate thoughts.

5. Develop New Revenue Streams or Markets

It is times like these that you must be steadfast and of clear mind to counter the disruptive forces and turn it into an advantage. Recently, a client of mine called to say that they are launching into health care products—entirely di?erent from their present business—as they foresee that the Covid-19 will leave and bring about profound changes on the way health and hygiene plays a part in people's styles. This is an example of opportunities in the midst of a crisis.

6. Financial Assistance, Moratorium on borrowings and taxes

The Malaysian Government and banks have—as some Covid-19 affected countries did—been announcing financial assistance schemes, moratoriums on repayments of borrowings and/or rescheduling of terms. Furthermore, the Central Bank of Malaysia has announced that these are automatically granted with no penalties and that it will not in any way have a bearing on the customers’ credit rating profile.

Additionally, the insurance companies have been instructed to assist their customers in regard to premium dues and other obligations.

Some banks have even gone further by announcing that interest will not be compounded during the moratorium period. That, I thought, was most forbearing of bankers to go that extra mile to support its customers.

Apart from the above, the economic relief package has also announced substantial loans at very low interest rates that you can apply for to tide you over these uncertain times. These are timely and thoroughly appropriate measures as cash flow and cost of funds will matter tremendously across almost all economic sectors as economic activity is forced to come to a standstill.

Another matter that you should urgently do is to revise your forecast pro?ts for the year and apply for a reduction in your tax installment plans as the Covid-19 disruption is certain to impair your results for the current year. In this respect, you should work with your accountants and make a decision. You, therefore, will be well advised to evaluate these features and incentives and apply them for your unique circumstance.

7. Your staff: Your Most Valuable Asset

You probably would have heard the maxim that “Staff can make or break an organisation”. Communicating your plans and actions will augur trust and confidence. In times of crisis, organisations that had stayed true to welfare and development, will demonstrate greater ability to weather a storm. Your efforts in the past in this regard will determine their support and commitment levels during these difficult times. If you are unsure, open a dialog session and come out sincerely so that you know how you are perceived so that you can appropriately devise your strategic and tactical plans during these times. Which brings us to the next point.

8. Leadership

Your leadership skills in motivating and inspiring them to stay strong and committed to your organisation’s turnaround/survival strategies will determine where you will be when the crisis turns. Therefore, negotiating revised remuneration terms, financial support and comforting their concerns on continuity of employment will boost their trust and con?dence levels and loyalty which will be critical to obtaining buy-in for your plans.

9. Reduce Accounting Cost

Many business owners, particularly SMEs, are unaware that a lot of unnecessary costs is actually hidden in their finance and accounting function. Mostly, it is due to the duplication of processes and procedures owing to the low application of automation and fast financial closing techniques. This is basically an issue of skill deficit as SMEs have a limited pool of talents to source from.

The SME sector is traditionally an unglamorous sector from the perception of job seekers. For this reason, qualified accountants or talented para-technical accounting personnel shy away from it. For this group of job seekers, SMEs will not give them the profile that they seek to future-proof their career nor be able to lure them with the financial incentives that MNCs or listed corporations could offer.

Hence, SMEs—even those on the higher end of the spectrum—make do with general administrative staff with some basic bookkeeping knowledge. Accounting and finance, therefore, can be a daunting task for these SMEs.

Another factor that adds to it is the fact that SME business owners themselves do not possess the domain knowledge in finance and accounting to effectively monitor and drive its function and performance. Therefore, they may not be aware that finance and accounting function is lumbering at low-efficiency levels and even overstaffed—sometimes referred to as the blind spot.

These twin factors feed each other and drive up the accounting function cost to unnecessary levels without being noticed. In times like this, it will pay to scrutinise this area for cost-saving measures. If you are unable to do so you could engage the service of a Financial Recording and Reporting Service Providers (FRRSP) who will optimise cost and drive efficiency on your behalf.

10. Mergers, Reconstructions and Discontinuance

In an unfolding environment such as we are in now, contemplations abound. Some of us may consider exiting the market that we are in presently. Some may consider exiting one market but entering another. While some may consider shutting down temporarily and take a wait and see stance. Even some might seize this opportunity to buy up competitors and consolidate their position. The same could also be said for investment opportunities, where the market may be hawking attractively priced assets. Whatever it may be, this may be the time to do just that which you feel the time has come. Covid-19 may well be the forbearer of the reset button. Call up your trusted accountants or consultants. Now may well be the moment for that.

11. Could Technology and Working From Home

With Covid-19 hotspots popping up every day across the globe its fury, it seems, is far from over. With measures like movement control orders, lockdowns, curfews and social distancing becoming commonplace to contain the disease, it is likely to leave a lasting impression and probably forever change the way we live and work hereto forth. Therefore, lifestyle choices, the way we interact socially and at work will be affected in some way or other. Social distancing and working from home will be the new normal.

Given the present scenario, the priority of business owners will be to keep their business a?oat and their staff safe and gainfully engaged. And, the only way possible—at least in the immediate future—is by working from home and leveraging on cloud technology. And, since 75% of the workforce is now made up of millennials, adapting to this new work style will not be difficult. This is, therefore, the ideal time to migrate and immerse yourself into the digital space—which in all probability you had been contemplating but never got to it!

Bala Subramaniam Rasu, Managing Director of RBS & Associates and member of the Malaysian Association of Certified Public Accountants and the Malaysian Institute of Accountants. He is an approved company auditor, Tax Consultant and a Liquidator. This article serves to provide guidance to SMEs in Malaysia in the wake of the measures taken to combat the Covid-19 virus pandemic. Some elements of the guidance may not fully reflect the latest government incentives. The reader is advised to refer to current government notices.