Small business: BDO Christchurch on maintaining cashflow in a crisis

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With BDO Christchurch Partner Phillip Roth, Business Advisory Specialist on SMEs challenges with cashflow after the February 2011 Christchurch earthquake.

How did the cashflow of SMEs freeze immediately after the earthquake?

Some SMEs, unaffected physically by the quake, did not necessarily experience cash flow freeze. But for those whose physical infrastructure was compromised, the freeze was immediate. Retailers, restaurants and cafés really bore the brunt, many in the CBD simply ceasing to operate due to severe damage to their premises, sending a lot of business owners into a state of panic and uncertainty.

Service industry and construction businesses were also hit badly by cash flow freeze. For example, contractors who'd started on a job and purchased all the materials were suddenly not getting paid. And of course there was a huge knock-on effect down the supply chain. So the freeze literally snowballed.

Banks responded immediately and generously, recognising businesses were severely compromised and stepped in with the offer of short-term financing - often temporarily doing away with covenants and normal lending criteria.

What steps did SMEs take?

For businesses with severely compromised premises they immediately had to find new premises. For the majority of accounting and legal firms in the CBD, who still had clients needing servicing, this led to high-level collaboration. People set up working teams and set up at home. Those with internet connections and good electronic information systems could retrieve crucial data and start transacting immediately. For many without electronic systems, they simply couldn't transact.

After several weeks of home-based operating, there was almost a feeding frenzy among professional service firms to get leases in industrial and suburban zone sites, which pre-quake had been struggling to find tenants. For BDO, for example, with our CBD building severely damaged we managed to relocate within three months to a 'green-sticker' two-storey permanent premise in Burnside.

For manufacturers in the eastern side of Christchurch where buildings, sewage and wastewater infrastructure were severely damaged, some businesses had to close, either permanently or temporarily. Others rose to amazing levels of collaboration, offering premises for other businesses to relocate or use as storage. On the west side which was not so badly affected, businesses faced major challenges getting around the city with roading damage and liquefaction forcing them to use different routes, resulting in costly delays. For all businesses it was a matter of looking at the options, making a prompt decision and acting decisively.

How long did businesses have to wait before things went back to normal?

Rather than back to normal, there is a new normal emerging for all business which is based very much on co-operation, operating together, sharing resources and finding new ways of doing business in the city, in the nation and overseas.

What lessons can SMEs around the country learn from this?

Relationships matter, but they matter more in a crisis. There is a silver lining to the many sad and unfortunate stories; the stories of the many businesses doing extraordinarily well because the crisis has forced the issue, forced them to be innovative in the way they do things.

With the huge personal toll on staff, business owners have stepped up to support them through tough times, creating stronger teams working together more effectively than ever. It's become very much about looking forward to a positive future.

How did the BDO work with small businesses in Christchurch to guide them through their cashflow dilemmas?

Our catch phrase was respond and act quickly and show generous support and care to our clients. Before even addressing cash flow issues, we asked people if they needed help to get their businesses physically mobilised. In some cases we rolled up our sleeves and went in just to help them literally get the front door open.

Then we looked at what they needed to get business continuity, working with other parties including the banks to ensure they could operate.We also engaged with a range of organisations such as the CDC (Canterbury Development Corporation) and the Chamber of Commerce, to a lot of other professionals, realising we weren't competing but working together to support each other through the challenges.

Alongside this we carried out urgent financial assessments, helping business with financial projections and scenario planning and pitching them to the financiers. With our backing, these clients had the credibility and integrity that these funders needed to give their backing.

Finally, BDO has also been involved on the earthquake recovery focus at a committee and working group level, providing expertise, access and reach to move Christchurch forward.

www.bdo.co.nz