New harsh realities of (not) doing business

BIZLINKS - Rey Gamboa (The Philippine Star) - August 20, 2020 - 12:00am

For many businesses in the Philippines, it is no longer a matter of getting financial assistance from the government to survive the lockdowns. The pandemic has pushed their backs to the wall and operating under the new normal guidelines no longer makes any business sense at all.

Tour operators, for example, will likely need to consider taking a longer break from their business as the impetus for most kinds of travel – leisure or even work – have been clipped. Unless a more productive use for vans, which are largely indispensable for their business, can be found, it would be best to sell them rather than pay for monthly installments.

Those affected in the tourism industry, however, are just a small fraction of the landscape of affected micro, small, and medium-sized companies or MSMEs that will need to think hard on how they will survive the next months, perhaps even in years.

Global management consultancy firm McKinsey and Company has come up with several studies about survival of businesses in the middle of all the calls for physical distancing and evolving consumer preferences.

Default risk

According to one of McKinsey’s papers, released earlier this month, banks are increasingly focused on measuring and monitoring credit risks even at the subsector level to understand better the financial life of their borrowers. The result is an interesting picture of just what segments of the operational chains are vulnerable to defaults, or which will survive.

In the automotive subsector, for example, the probability of default for businesses that involve the manufacture of motor vehicles and motorcycles, and the sale of cars and light motor vehicles is low. The risk is higher, though, for companies that maintain, repair, or manufacture parts and accessories of motor vehicles and motorcycles.

Determining what subsectors of MSMEs are at highest risk of default should enable the government to determine where to focus stimulus funds that will be made available from the second package of the Bayanihan to Heal as One Act.

Waking up to new realities

More importantly, though, for many of MSMEs that face a bleak future, resetting their business model to adapt to the new reality will determine whether all the capital accumulated pre-pandemic would be salvageable and put to another use.

An increasing number of stories can now be found, especially at the micro-enterprise level where absolute bankruptcy has been avoided. Many have started by first taking a hard look at their financial condition to enable them to cope with any plan going forward.

Seeking assistance through the government’s stimulus program could be an option, but with the limited amount appropriated versus the deluge of relief applications by similar small companies that had been adversely affected by the virus, not pinning all hopes on getting a lifeline is prudent.

Don’t rely too on lawmakers’ discussions about extending loan moratoriums, even if it is just for two months. At the end of the day, you still have to pay the loan, even if this is staggered over the next three or six months. The reality is that your operational income in the near future may still not be enough to cover loans repayments.

Coming up with more realistic accounting would still be the best way to move forward when planning your next steps. There are just too many risks in the market today – from dampened consumer demand to changing spending patterns to changes in quarantine rules.

Adapting to change

Some MSMEs are coping, even if barely, by keenly observing new customer habits. With going out for essential needs now, even tightly planned by households and dining out not a desired option, many sari-sari stores and eateries (or carinderias) have noticed a drop in their income.

Reaching out to members of the community and making them aware that you deliver grocery items or cooked food would be a perfect fit to their unexpressed needs.

A colleague remembers his childhood in the ’60s when a cariton of fresh market goods would make the rounds of his streets early every morning, something that was popular with his mother who was freed of the need to go to the wet market daily.

Some delivery services now accept partners who use bicycles rather than motorcycles. This not only gives an opportunity to people who want to work but who also cannot afford to buy a motorcycle, and at the same time is more eco-friendly.

Prioritizing job creation

For most MSMEs affected by the pandemic, keeping the best staff in anticipation of better days is a no-brainer. Letting go of most of their employees, some of who have been with them for years, to survive is heart-wrenching.

Government must pay more attention to how new job opportunities can be generated for displaced workers, especially as all of the salary benefits granted under Bayanihan 1 are slowly being dissipated by the lengthened lockdowns.

We’re now seeing photos of able-bodied men who profess to be former jeepney drivers whose livelihoods have been cut by the quarantines asking for any form of help to feed their families. Soon, we will see others being laid off from restaurants, department stores, salons, gyms, transportation companies, and construction sites begging in the streets.

The joblessness we read from news channels is beginning to show a face that is uncomfortably difficult to look at. Something has to be done to address this urgently.

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Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at reydgamboa@yahoo.com. For a compilation of previous articles, visit www.BizlinksPhilippines.net.

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