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Restructuring operations in preparation for a new chapter

Covid-19 has caused significant disruptions for businesses on a global scale, especially as they try to protect their cash flow and liquidity.

It is known that cash flow is the lifeblood of a business, and once cash flow becomes unstable, a business can quickly run into difficulties. However, there are still possible solutions that business that business leaders can implement to maintain liquidity, control cash flow, and negative business operations in the context of the new normal.

Restoring domestic market purchasing power along with business efforts is the most crucial factor determining Vietnam's success in maintaining positive growth.

It must also be clarified that restructuring is one of the necessary activities when a business is facing challenges. Businesses do not necessarily need to be in severe financial distress to undergo restructuring; sometimes, it's simply a situation where a business needs additional capital, streamlining cash flow, improving operational efficiency to boost profits, or other reasons. Restructuring can help businesses identify critical issues affecting liquidity and operational efficiency while providing feasible solutions.

Reacting to on-going changes

Retail and hospitality are two industries that have been heavily impacted by Covid-19. In these sectors, the need for business restructuring and process organization is substantial. Prior to the pandemic, there was no precedent for the need to build a rapid response platform. However, given the current speed of virus transmission, rapid response is more crucial than ever. During this time, we have witnessed significant changes in how the retail market operates.

With the current economic predictions, we may continue to witness changes in the retail industry in the coming months. Successful retail businesses have seized this opportunity to rationalize and reduce the number of stores or outlets. This may not be without negative consequences, as reducing stores may lead to job cuts and employee layoffs. Some retail businesses, like supermarkets, have thrived even more due to their immunity to social distancing measures and their quick implementation of safety protocols for customers and employees, creating opportunities to attract even more customers to shop even during a pandemic.

The changes implemented through operational restructuring have greatly supported the recovery and continued operations of many organizations. Without quick decision-making and the implementation of necessary restructuring steps, many businesses would not have been able to maintain their market position. It can be observed that many restaurants, bars, and beer clubs have adopted entirely different business models compared to their pre-Covid-19 operations, such as temperature checks, hand sanitizing, spaced seating arrangements, encouraging takeout and home delivery services, and more.

The car industry is also among the sectors that had to make adjustments due to sudden changes caused by Covid-19. Overproduction during periods of low demand and the shift in consumer preferences from gasoline to electric vehicles have had a significant impact on the industry's restructuring process. These changes will continue to influence consumer choices, and the traditional showroom system may become less important compared to the speed of introducing suitable new car models in the future.

Continuing the new normal and what comes next

Globally, we have witnessed a significant increase in the demand for and interest in restructuring services during the initial phases of lockdowns. However, what will this demand look like in the next 12 months? The unprecedented government support has helped businesses withstand and temporarily mitigate the need for restructuring. Nevertheless, the government cannot support the economy and businesses indefinitely, so there is a valid reason to believe that the demand for restructuring services will continue to rise in the months ahead. The reality is that the money borrowed by businesses to navigate through Covid-19 will eventually need to be repaid, requiring business owners to make tougher decisions to enhance their operational efficiency.

Mr Le Khanh Lam - Deputy General Director of RSM Vietnam

One intriguing side effect of Covid-19 is the shift towards working from home. This is sure to have a certain impact on the commercial office space rental market, especially in central city locations. Economies affected by recession, coupled with an increased unemployment rate, also have the potential to negatively affect the residential real estate market. However, the significant increase in online shopping is almost certain to lead to a high demand for warehousing.

Another effect of remote work is that many organizations are realizing they can maintain efficiency when employees work remotely. This could potentially lead to a reduced use of office space after the Covid-19 era. There have been numerous examples of businesses downsizing their workspace to accommodate employees on a rotating schedule. More people working from home is bound to impact daily retail activities, as well as food and beverage service industries during the day. Cafes, office coffee vendors, and similar establishments are the ones most visibly experiencing these effects.

The focus for businesses in the coming period should not be overly fixated on the negative situations they are currently facing, but rather on seeking positive solutions. There are many smart ways to restructure business operations based on the current business environment, and some of these methods may involve making tough decisions that business owners need to resolutely implement before their businesses can recover.

Author: Mr Le Khanh Lam - Deputy General Director of RSM Vietnam

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