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Newsletter, Volume 17 | March 2020

Wow! With President Cyril Ramaphosa’s Sunday evening announcements still ringing in our ears it is hard to reflect back on what we thought 2020 may bring for us and our businesses. From looking like just an ordinary year, with potential for a silver lining (the budget was quite positive), we were then hit by multiple shocks! Covid-19, oil price shocks and crashing stock markets are not exactly what any of us had pictured for the year 2020.

 

What does this mean for owners of small and medium enterprises? Put your head in the sand and hope for the best? Send everyone home and try again in a few months? I don’t think so. As South Africans we are known for making a plan, and we all know the phrase “never let a good crisis go to waste! 

Last week I was honoured to speak alongside Dr Adrian Saville from Cannon Asset Managers and Nishlen Govender from Citadel at an event titled “The Future of your Business in South Africa”. The timing was tricky as the world was changing around us, almost as we spoke, but I did find some good take-outs for business owners and entrepreneurs. The first is that we, as a country, are not a Zimbabwe or a Venezuela, both of which have failed to navigate themselves through economic crises. Unfortunately, we are also not a Chile or an Ethiopia; countries which have proactively determined their own economic success. Rather, we are something like an Argentina in that we will absolutely survive, but we must not expect the journey to be smooth. My other take-out was that it really is the bigger, listed companies that struggle in times like these. They find it difficult to manoeuvre in changing markets, and under close scrutiny from shareholders they tend to be very conservative with every move. What does this mean for us? It means that there is opportunity, we just need to find it.

In meeting a significant number of small to medium enterprises in my everyday activities I am constantly amazed at how many are doing incredibly well. They are typically the businesses doing turnover of around R150m to R600m and they are growing rapidly as they “move the cheese” once owned by the large and listed corporates. The questions to ask business owners today is: are you able to do the same? Do you have the working capital and risk appetite to handle the growth? And have you thought about de-risking from this “average” economy of ours while at the same time bringing a powerful equity partner into your business to assist with growth? We can help – ask us about our SMA (Saleability and Market Assessment), more than a business valuation! We can keep contact low, while making sure you come out of the current market conditions ready to take advantage of what is out there.

To close, I had said I would provide feedback on the tax event we held in January… it is now March and I have not yet done so! The event was a great success and a special thanks to Andrew Bahlmann from DLA and Ruaan van Eeden from Investec. Their insights were powerful and gained extremely positive feedback from the audience. I cannot cover all the detail here, but I do suggest that business owners start learning and understanding the basics around a company sale vs an asset sale (also known as “sale of business”). There are so many opportunities in these various deal structures to either pay way too much tax, or to feel like you have won the lottery! Please give me a call if you would like to talk through the basics, and I can direct you to the appropriate professional if you need more detailed advice.

That’s it for now. Stay healthy and keep looking for opportunities!

Regards,
Rick Grantham

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