12.04.20

Uncharted Territory

Helping SME owners navigate these difficult times

Tom Matthews

The tragedy of the COVID-19 pandemic is having a profound effect on the lives of millions of people around the world. Modern society has never seen anything like it, and neither has the Australian economy.

GFC vs COVID-19

It is tempting to compare the impact of COVID-19 on the economy with previous major events such as the Global Financial Crisis (GFC).

The GFC was a financial shock affecting the demand side of the economy, with many industries experiencing a significant reduction in revenues. The result was a shock to the economy globally and to a lesser extent in Australia.

However, the key difference with COVID-19 is that we haven’t just seen reductions in revenue but rather whole industries shutting down almost overnight. For companies in these markets, revenue has not just declined, it has stopped completely.

COVID-19 has impacted both supply and demand within the economy. Restrictions on people movements (factories, travel etc.) reduces the productive capacity of the economy. Less patronage also represents a demand shock as consumer spending falls. These effects can also be self-reinforcing as lower incomes can affect spending.

The impact on Australian businesses

COVID-19 is having a staggering impact on Australian businesses. The latest data from the Australian Bureau of Statistics reveals that two-thirds of businesses across all sectors reported taking a hit to revenue or cash flow due to COVID-19.

Almost half of the businesses still trading reported making some sort of change to their workforce in the past few weeks. For some businesses this included temporarily reducing staff working hours, changing the location where staff worked (including working from home) or staff being placed on leave.

Two in five businesses have changed how they deliver their products or services, including shifting to online services.

Over a third of businesses have renegotiated their lease and rental arrangements and a quarter have deferred loan repayments.

How an experienced growth investor can help?

A highly experienced growth investor like Pemba can help SMEs navigate these difficult times. Partnering with Pemba can enable SMEs to leverage a highly experienced (and well capitalised) growth investor that has invested through previous economic cycles and understands the importance of supporting founders and management teams as they manage through this uncertainty.

The team at Pemba can help founders and management teams implement initiatives such as cash management, cost reductions, net working capital management, capitalising on the Government’s various financial stimulus packages, etc. to ensure their businesses are doing everything they can to see them through this difficult period.

The senior team at Pemba have invested through similar economic cycles, such as the GFC in Europe. Just as the GFC did, COVID-19 will likely present lots of opportunities for SMEs and investors like Pemba.

At Pemba, we believe that by continuing to invest in our platform companies, our founders and management teams will come out of these unprecedented times stronger, faster and smarter to tackle a market that will be primed for innovation and speed.

Final thought

More than ever, a partnership with an experienced growth investor like Pemba could be a fantastic opportunity for SME owners to navigate this period of uncertainty and capitalise on the growth opportunities on the other side. Please contact us if you would like to find out more and how we might be able to help.

Photo by Nicole Wilcox on Unsplash

Featured Investments