Home » Webinar: Business Restructuring for Success in post COVID Australia – A Discussion with the CFO Centre

Webinar: Business Restructuring for Success in post COVID Australia – A Discussion with the CFO Centre

Posted by Colin Miller | 23 June 2021 | Business Structuring

As part of an ongoing webinar discussion series, the CFO Centre and Nexus Law Group discuss key economic, financial and legal issues impacting Australian SMEs. In this episode, the CFO Centre’s CEO David King, NSW Principal Paul Gunson and Nexus Corporate & Commercial specialist Group Principal Colin Miller discuss current client business sentiment and structuring options available for SMEs in this new post Job Keeper economic environment.

 

During the discussion, CFO Centre Paul Gunson and Nexus Colin Miller both agreed that, based on client feedback, that Australian SMEs are cautiously optimistic about their economic future in the new post Job Keeper landscape, with CFO Centre Paul Gunson pointing out COVID has been a driving force of change, bringing ecommerce to the forefront; “COVID has brought ecommerce forward 10 years in advance than it would be, and I think that this is the massive positive I see, as a business manager. There wouldn’t be many companies that had a relatively strong ecommerce presence before COVID, that haven’t seen a massive uplift in customer activity in that area, and I think that is so positive. I think that it has generated growth opportunities for those businesses and that those owners are now seeing this as a time to expand, so I see that as a real positive.”

Commenting on the changing nature of client requests for assistance since the end of Job Keeper, Nexus Group Principal Colin Miller said “Less and less clients have been planning for worst case scenarios, and looking at more either business as usual or a potentially improving business environment …  More often, they have approached us regarding managing the business whilst keeping on top of the changing regulatory environment. Changes in the economic playing field have been complicated, but we have seen our clients reaching out to us more and more simply for reinforcement that their decision making is in the right direction.”

Click below to watch the webinar discussionCF

Transcript: The CFO Centre and Nexus discuss Business Restructuring for Success in post COVID Australia

CFO Centre CEO David King: “Welcome everybody to a joint webinar held between Nexus Law and the CFO Centre. My name is David King. I’m the CEO for the CFO Centre across eastern Australia and New Zealand. And today we’ve got a webinar titled business restructuring for success in post COVID Australia. We’ve got Paul Gunson from the CFO Centre based in Sydney and we’ve also got Colin Miller from Nexus Law Group who is a corporate and commercial specialist for the Nexus Group. Welcome gentlemen thanks for joining us today.

So we will jump straight in, it’s a very sort of practical subject that were talking about today one that’s very pertinent to what’s going on out there in the business community at the moment. In terms of the current environment there’s obviously been a lot of businesses that have been used to receiving government support and other forms of support. Up until recently at least for a good 12 months so the first question I wanted to pose to our two panelists today was:

What’s changed in Australia’s business environment in the last couple of months?

 

CFO Centre NSW Principal Paul Gunson: “Thanks David. Look I agree, look over the last 12 months it’s sad but our small and medium-sized enterprise businesses have become very comfortable about receiving government handouts. So I think at the end of March I think many had a bit of a shock when they saw that Job Keeper had been withdrawn, a businesses ability to defer commercial rent with their landlords was withdrawn as well. The government started rolling back all those support measures that it introduced at the start of the pandemic and we’re now left in a situation whereby businesses are seeing that their landlords, their suppliers are now putting pressure on them to make payment for debts that in some cases are many months old.

We look at some of the industries such as retail, hospitality, tourism, the arts, entertainment industry they’ve been particularly hard hit as well due to a lack of overseas tourists and the restrictions that were brought in as essential under the COVID environment interestingly though, and this is very current, the government has only recently shown with the Victorian lockdown that we hope will finish off at then end of this week that they remain willing to offer financial support to businesses in specific circumstances

But I don’t believe that businesses should rely on this because as they did throughout the whole of 2020, I just think the bit that our government nowadays is going to say “No, you’re on your own guys” – so what are your thoughts Colin about the environment?”

Corporate & Commercial specialist Group Principal Colin Miller: “Well, were certainly at the end of the federal and state government financial support there are still some packages and ability for the companies to seek that support but I think your comment that companies should probably look away from relying on that too far down the track because obviously we come into a sort of a cycle of reliance which is not particularly positive.

On the other hand, on sort of a macro picture I think we have been surprised by some turnaround in the level of business confidence.

It’s not across the board there are certainly sectors that you’ve mentioned have suffered and will continue to suffer until boarders are open, but the picture is not all bad and I guess in the context of this discussion we’re really looking at the opportunities that businesses may have for coming out of hibernation or for businesses to make a real decision as to what is the way forward.

David King: “Thanks gents. Further to the current environment there’s been a lot said, in the lead up to the 31st of march, where for instance job keeper ended, that you know the economy was going to fall, perhaps even to a recession, there was going to be significant job losses falls in consumer demand and the like you know, do you guys feel any of that has occurred and what positives do you see when you consider what’s currently going on out there, might start with Colin.”

Given talk of significant loss of jobs, falls in consumer demand and another recession. Has that occurred and what positives do you see when you consider the current business conditions?

 

Colin Miller: “Thanks David. The naysayers and the doomsayers I think got it wrong which is good news. I mean as early as March or April people were talking about a quarter of a million job losses and you know significant unemployment. The figures have really surprised people, which is excellent, again on a macro level and I think there is a couple of key factors that have been responsible for that:

  • One is that we’ve obviously been very fortunate to have limited COVID infections because of the closed borders which has allowed us to have a relatively open domestic economy,
  • Very low interest rates obviously key in terms of financing businesses and keeping our heads above water,
  • Falling unemployment, it’s come down another 3% in April from February which was at 5.8%
  • And also, I think because of the lockdowns we’ve had people saving, literally not going out spending, no travelling, not buying those luxury items that they might ordinarily have done. so that spending ability is going to start kicking into the economy and I think that’s been a positive display.

One factor I think is very important to note that in 2020 we had about 50% of the usual number of bankruptcies, insolvencies, which took everybody by surprise but that was really driven by the fiscal support that the Government was providing, probably to some businesses that would have failed anyway. So it is likely there will be a big uptick in the number of insolvencies – but that’s really going to represent a big chunk of the so called zombie companies that possibly would have failed had the fiscal support not been there. So Paul, what’s your take on that?”

Paul Gunson: “Well, I agree with you, look, we never saw those job losses, and did anyone see that cliff that everyone said that would be waiting for business and our economy it just wasn’t there.

I mean look, there have been a few industries that have really struggled. We’ve got the airlines, we’ve got any business that is related to overseas tourism you know those two industries have been severely impacted by the fact that we Australians can’t travel overseas and international tourist can’t visit our shores and I think in those two instances, I think it’s really good that the government is looking to continue with a tailored support because that’s really needed positive things.

Look consumer demand has increased. I never thought it would when I heard COVID had stated. I think people who use to spend their money overseas are now spending it here in Australia and we see that it’s so hard to get a new car at the moment, you have got to wait for months.

People are spending their money on their homes, they are increasing their asset values you know, and I suppose that’s leading to the fact that I think that there’s a lot of consumer and business confidence out there.

Interesting fact I found out the other day, you don’t realise these things but, Australian’s spend more overseas each year than all our international inbound tourists do, so it’s only natural that our economy would be growing and it think that confidence I talked about, that’s underpinned by initiatives by our federal and state government support, things like the dine and discover vouchers, the New South Wales accommodation vouchers the fact that the government has been funding 50% of domestic flights to certain destinations, again supporting tourism and industry, and of course they have got the situation whereby those government investment incentives are continuing, things like the instant asset write off, absolutely essential to ensure that capital is invested in our economy. So I agree with you Colin, I think it’s a lot better situation than we all expected 12 months ago.”

David King: “Thanks, yes I certainly agree with that. From what I’m seeing. I guess just to go a little further and to bring this to life a little bit, it would be great to understand I guess the current temperature of the economy by getting some feedback form you in terms of what you’ve received from clients and others out there in the marketplace so perhaps if you could comment on, you know, how you believe they’re feeling at present about the situation just to back up what you’ve said.”

Help us understand the current temperature of the economy. What feedback you have received from your clients and how you believe they are feeling at present?

 

Paul Gunson: “Look now I’ve had the advantage of canvasing the CFO Centre’s nationwide network of CFO’s and asked them to find out how their clients have adapted to the pandemic, what has changed in their client’s businesses and how they are feeling about the future and I must admit the feedback I’ve received is that overall confidence is high, but there still remains plenty of uncertainty especially in that SME area and their all really concerned about how do they act in the short to medium term to protect their businesses we also analysed those responses that we got back from the CFO Centre people and they tended to be quite industry specific.

Look for example our recruitment clients their experiencing a resurgence at the moment because during Covid there was no recruitment so they are feeling very positive at the moment, and as you know job ads are a leading indicator for company confidence levels in the software and IT industries most of those clients, they actually were required to receive the cashflow boost and job keeper but they are now back in a revenue growth scenario and are very positive about the outlook.

But there is still caution there and that’s the thing that concerns me because that caution will have an impact on their decision making, and it will be decisions alright that are looking at the medium to long term future of their businesses. Also we’ve had clients that rely on importing and they had to manage those shortages in air freight capacity and port delays and just recently, nothing to do with COVID but, when the Suez canal was blocked but that supply guarantee that has been a headache for them for the last 12 months, we’re now starting to see that it’s a thing of the past.

Now all these positions are very different when you listen to the hospitality and entertainment industries they have all been ravaged by lockdowns, meeting number restrictions and the lockout of overseas visitors, those companies, they’re really struggling and some owners, they have just had enough and it’s sad to see that a number are shutting down completely.

Now as to how clients are feeling well a lot better than they did this time last year, and I think confident would define the main feeling that they are communicating to us – however, caution is ever present and I’m sort of hearing you know lots and lots of SME’s alright, yes they look at the economy and think positive; but personally they are still feeling uncertain, and I suppose that’s where we at the CFO Centre are there to offer assistance. Colin, your thoughts?”

Colin Miller: “Yes, absolutely reinforce those comments. The uncertainty is the issue that is a concern because whether the business is you know prospectively looking at a positive bounce back or its under financial stress the uncertainty of decision making for management really leads to sort of a lockup mentality and that’s not where a business wants to be. To move forward you have to be making positive changes, whether incremental or significant and the uncertainty in any direction is always bad.

I think from our client feedback many are sort of emerging from that hibernation stage and to some degree its business as usual, the have tightened their belts already during the last year and the last quarter and are seeing potential opportunities for expansion because of the turnaround in certain sectors of the economy that have come around quicker than otherwise and also because certain players in certain markets businesses won’t have survived as well and that gives rise to additional M&A opportunities.

I think also for certain clients, the very rapid recovery in Asia has been a great surprise and many parts of the economy are highly dependent upon Asia as a destination for our manufactured goods etc but also noting that from the importers perspective, as you mentioned Paul, there were some significant issues and still are with border closures and getting the operational capabilities and capacity back to usual, so I think on balance I would say cautiously optimistic is probably the way that most clients would respond at this point in time.”

David King: “So are there any sort of further positives that either of you see at the moment, when you consider the current business conditions. Anything further to what you’ve already mentioned that you’re seeing out there at the moment. Perhaps Colin you could lead?”

What positives do you see when you consider current business conditions?

 

Colin Miller: “Yes. Thanks David, I think, you know we have a disputes practice as part of our law firm and there haven’t really been the level of disputes that might have been anticipated at the beginning of COVID, you know banks, counterparties, businesses have tried to be reasonable in approaching you know the financial stresses on their counterparties or their customers so that’s been a positive.

Now that the financial support has been you know tapered from the government at a federal and state level businesses that are under stress will be seeing more potential for disputes, and you know statements of demands, ATO becoming more aggressive in its revenue chasing, but overall, that has not been evident to this point in time.

Less and less clients have been planning for worst case scenarios, looking at more either business as usual or a potentially improving business environment the other point is that it has been a great distraction for management simply keeping on top of the legal and regulatory changes, what financial support is available, how does it apply, how long is it going to be in place, you know etc.

So, managing the business as well as keeping on top of the changing regulatory environment plus the changes in the economic playing field has been complicated, but we have seen clients reaching out to us more and more simply for reinforcement that their decision making is in the right direction.

It might not necessarily be for detailed legal advice but just you know getting a temperature check of you know if this the right approach, who do we need to speak to if we’re looking for conformation of what federal support is about, are there changes to state legislation etc, so I think we’re in a position to help our clients drive that discovery of the changing landscape and I expect for you as well that’s something that you would have heard from your clients Paul.”

Paul Gunson: “Yes they are so happy alright, the fact that there is all this new legislation that’s come in, but I must admit I tend to focus on the commercial side and I go COVID has brought ecommerce forward 10 years in advance than it would be and I think that is the massive positive I see as a business manager.

There wouldn’t be many companies that had a relatively strong ecommerce presence before COVID that haven’t seen a massive uplift in customer activity in that area, and I think that is so positive and I think that has generated growth opportunities for those businesses and I think that those owners are now seeing this as a time to expand so I see that as a real positive.

Look we at the CFO Centre we actually we look at many many businesses and we see that businesses have fallen into three categories post COVID:

  1. You’ve got the ones I’ve just mentioned where they have great revenue improvements, owners are feeling confident and optimistic and they’re looking for growth opportunity.
  2. Then you’ve got the business okay where the revenues almost back to normal feelings of tentative optimism but the lockdowns and those demand restrictions on the business has really depleted the businesses working capital and cash flow and in those scenarios those owners are feeling uncertain about the future and especially uncertain as to how do they act going forward that best protects their business.
  3. And then sadly, you’ve got the business models that post COVID are just non-competitive and we’re seeing those owners are now planning out exit strategies from those businesses

And it’s always sad to see that in those instances and I think those three categories are underpinned by the results of many surveys that we see at the moment that are being prepared by financiers that are showing that 50% of businesses have seen an increase in their turnover since the start of the pandemic 25% have shown a decline and again sadly 25% say that they are going to close if they don’t see any revenue improvements in the future.
So yes, lots of positives and I see a positive future for businesses who are managed well.”

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