Leading the recovery: An Asian SME perspective

As the coronavirus storm hit communities and economies, countries across the world stepped in to provide crisis aid to SMEs and to help them lead the recovery beyond the crisis.

In the UK, the government introduced a series of measures including, in early May, the Bounce Back Loans scheme, which provides 100% state backing for loans for SMEs up to £50,000.

In Italy, businesses with workforces of up to 499 employees can benefit from the Guarantee Fund for SMEs — state-backed investment and working capital loans administered through financial institutions.

In Asia, the Hong Kong Monetary Authority announced in its February Budget measures to help SMEs as the impacts of the current health and economic crisis continued.

One Hong Kong-based finance leader with an overview of the Asian SME market is Paul Gardner, ACMA, CGMA, who is CEO and CFO of Fresh Accounting, a multidisciplinary company with operations in Hong Kong and Singapore, which Gardner founded in 2014. It provides accounting services for clients and supplies CFOs for businesses, and also implements cloud-based accounting solutions.

The majority of Fresh Accounting’s clients are multinational SMEs operating in Hong Kong, Singapore, or other Asian locations. Unlike in the UK where accounting firms’ expansion is typically to other UK cities, Asian firms often expand into other country markets. Gardner said this has meant the ability for business owners “to see information anywhere, anytime has been very critical”.

Survivor traits

Gardner’s work with many clients who are operating in multiple locations gives him a good vantage point to view the factors that make companies resilient amidst the pandemic. He predicts that the companies that will pull through the crisis are those with strong balance sheets, strong brands and teams, and good cash flow and equity, and with a “strong emphasis on their own financial accounting and reporting internally”.

He added that businesses with strong leadership will be more likely to come through by prioritising their business, employees, and clients.

In contrast, he suggested that businesses with high costs and low margins will struggle.

Gardner’s own business reviewed all its costs — from his own salary to office rental to software licences — early in the crisis.

He explained: “We really tried to look at the costs that were not business-critical that we could either negotiate down or just temporarily pause and resume when the time is right.”

He added that businesses that had adopted cloud accounting were able to look at their financial information quickly and ask Gardner and his colleagues to be a sounding board and review their costs.

Managing cash

Management accountants, Gardner said, need to “get more creative in these times” in managing cash; for example, by offering discounts to businesses that are having difficulty paying for goods or services. He said his firm offered a 10% discount to three clients on fees that were outstanding by more than 90 days. One of the clients paid the amount in full immediately.

For some sectors such as aviation and travel, adapting to the new normal with social distancing and countries’ enforced quarantine measures is difficult. But Gardner pointed to examples of those businesses such as restaurants and fitness clubs that have pivoted to providing new products and services. He also said entertainment companies such as the Hong Kong Ballet are streaming content to people in their homes.

New risks

Even before the coronavirus pandemic had spread beyond Asia, cyber risks were moving up the global risk agenda, with these risks top of the list for executives surveyed for the Allianz Risk Barometer 2020. In Hong Kong, however, political risks and violence were the top risk, with cyber incidents — cybercrime, IT failure/outage, data breaches, fines and penalties — rated only seventh. In Singapore, executives rated cyber risks as second only to business interruption, which included supply chain disruption.

For Gardner, however, the move to remote working and cloud-based solutions has certainly brought new security risks to the fore — risks that are greater for multinationals rather than SMEs, he suggested. “The new types of risks that we're seeing are how secure is my information online?” he said. “If my team member might be working remotely, how secure is the software platform that we're using or the communication that we're using?”

In Asia, he said, there is typically still a reliance on cheques, but that more businesses were switching to making payments online, which would mean a change to authorisation processes and procedures.

Zero-based budgeting

The coronavirus is disrupting many aspects of business, including the budgeting process. “It really is a good time [for] management accountants to be able to look at other options as opposed to just here's a budget and incremental increase or decremental decrease,” Gardner said.

However, with government furlough schemes that encourage employers to retain employees, there are, he suggested, some challenges around adopting zero-based budgeting.

He said: “If we have budgets, we need to reprioritise our limited budgets and actually look at projects that can make a good business case for investments.”

Advice for SMEs

Gardner’s advice for SMEs includes:

• Review, manage, and cut unnecessary fixed and variable costs.
• Stop activities that are not going to add value to the business in the near future.
• Ensure existing customers are well serviced. The coronavirus means it’s much harder to sign new contracts or secure new revenues, so minimising lost sales from current customers is crucial. Find different ways of defining the existing service to your existing customers or to new customers.
• Where you have a budget and business plan, look at forecasting sales and put in place a rolling cash flow forecast to manage cash outflows.
• Scenario planning is critical.

For more news and reporting on the coronavirus and how management accountants can handle challenges related to the pandemic, visit FM’s coronavirus resources page.

— Oliver Rowe (Oliver.Rowe@aicpa-cima.com) is an FM magazine senior editor.