Between Liquidations And The Loss Of Light

By Sandra Beswick Director of Fluence Capital

As businesses of all sizes, industries, and expertise scramble to keep the lights on and operations running, while weathering the simultaneously raging storms of economic uncertainty, limited access to credit, and high levels of competition, recent StatsSA figures on company liquidations indicate what appears to be a steep climb in the number of liquidations in the fourth quarter of 2022.

The impact of this state of play on small businesses, in particular, gives much cause for concern. SMEs in South Africa represent more than 98% of business, employing between 50 – 60% of the country’s workforce across all sectors. And while the GDP contribution from SMEs lags behind other regions, there’s no denying the importance of small businesses to the lives and the futures of people who call South Africa their home.

With no light, as yet, at the end of the load shedding tunnel, small businesses have been forced to get creative in an attempt to address disruptions to operation and productivity that intermittent and persistent power outages – as well as decreased revenue – bring. In spite of their willingness to make a plan through investment in solar or backup generators (which are solutions that can already only be sought by the select few given their cost implications), many small businesses are struggling to keep their doors open, and industry leaders have suggested the increase in companies liquidating in the last quarter of 2022 is the direct result of load shedding.

As an expert practitioner in business rescue, I’ve long been aware of the challenges small businesses face when it comes to trying to put measures in place to keep from closing down. While business rescue was formally introduced with the passing of the Companies Act in 2008, as a framework for businesses in financial distress to rescructure their operations and debts in an effort to return to financial viability, the complex and costly process of business rescue often renders it an impossible option for small businesses in South Africa.

While there’s a long way to go to address these hurdles, I believe that there are a few ways for small businesses in the present to put themselves in a more stable position in the face of difficult operating conditions. One of these is to engage with creditors in order to try to negotiate better terms and keep them informed about when they can expect to be paid. Another is to avoid being in a state of denial about the company and its position, instead of opting to be proactive by understanding reality. It can be said of businesses of all sizes that the refusal to see the true lay of the land can cause companies to wait until the last minute to seek help, which can render any aid, and even a process like business rescue, unviable and ultimately unsuccessful.

In the current state of quo, and while options intended to assist small businesses specifically are still being developed, myself and my team at Fluence Capital are committed to helping struggling businesses by offering an initial free consultation to help them understand their reality and, if possible, to provide advice on the best options available.

In the wake of a challenging fourth quarter of 2022, the reality is that we can expect to see more liquidations and business failings in the months to come. My hope in writing this, and in offering advice through these free consultations, is to try to give small businesses the best chance of making it through what promises to be a very challenging year ahead.