Don’t wait for a crisis to think about cash, say experts at the Finance Indaba

EOH’s Megan Pydigadu and other panellists revealed how they keep the cash flowing in tough times.

Speaking at the Finance Indaba Online, Megan Pydigadu, EOH Group FD, said EOH’s crisis started long before Covid-19, “We had a corruption crisis, and were R4 billion in debt. The business had no cash forecasts, and didn’t understand which businesses were generating cash and which were bleeding.”

She says the company has now moved to a situation where they have a 13-week short-term forecast, which is managed on a fortnightly basis. “We were randomly paying suppliers daily and moved to paying weekly, managing terms around creditors. These measures helped us get in shape, so when Covid-19 hit, we were in a better position.”

Rob Aitken, Tongaat CFO, who also joined the company when it was in bad shape, recalled, “We had to revisit all accounting policies, have put in a disciplined cash flow forecast, and took reporting requirements seriously. Our one-year forecast is helpful because it allows us to see how decisions play out, and we made it an exercise that included others beyond the finance team to get a more well-rounded picture of the company’s health.”

Getting help when you need it
Karel Janse van Rensburg, Nedbank’s corporate and investment bank executive head: finance, strategy and marketing said that it’s important to establish a relationship with a bank and banker when you’re not in a crisis. “Banks are generally willing to help, and it makes it easy for them to do so when you have a longstanding understanding. You get the best funding vehicles, and corporates benefit by establishing a relationship prior to crisis.”

Kim Milward-Oliver, PwC director, capital advisory and restructuring services, said that when in a slump, the first thing is to understand the issue properly. “Different reasons cause crises, so understanding the drivers help you hatch a plan,” he said. “In responding to a sudden shock, such as Covid-19, fraud or loss of key contracts, you can take specific steps that address those.”

He said a cash forecast is not something produced to give to bank as an afterthought, but helps with decision-making.
Karel said that from a bank’s perspective, it’s important to see longevity in a business, “Crisis or not, the requirements stay the same – the business needs to be viable and have a track record. It is preferable to banks that the business’s record has been visible over time.”

He cautioned against surprising your bank: “It’s easier and faster to access help if you’re willing to be open and transparent. It’s not in a bank’s interest for clients to fail – we need to do everything to support you. In tough times, interaction is important.”

Kim says governance is very important in a tough environment. “In a world of increased uncertainty, with factors such as climate change, demographic shifts, and technology driven disruption, businesses have to deal with all these challenges while reconfiguring business for the future.”

Relationships with financiers
Meghan said EOH has been proactive in taking its lenders on their recovery journey. The company had to sell assets and has reduced debt from R4 billion to R2 billion, largely through sale of assets. “You need to make your lenders comfortable with the risks in your business by giving them a clear and transparent picture of what’s going on in the business,” she said.

Rob agrees, saying that bankers and credit insurers have been a vital lifeline for Tongaat: “You should work with, not against them. We share weekly updates. If you put the troubles on the table, they will work with you. In my experience, it’s better to approach them early with a clear picture of the state of your business. Sharing information in a timely and transparent fashion gives them confidence to deal with you, and that goes a long way.”

Kim’s closing words of advice were that finance leaders shouldn’t wait for a crisis to think about cash. “Try and stay cash fit,” he said, “which means always know the state of cash in the business and make keeping an eye on cash an organisation-wide consciousness.”