In this uncertain world, there’s one thing we can know for sure; the future will surprise us, again and again. We may not know precisely what these shocks will be or when they will hit. Sometimes there are warning signs, sometimes there aren’t. Some signs are only understood by specialists, at other times they are missed entirely.
Market shocks are no longer ‘black swan’ events. They have become a relatively normal part of our world. The Covid-19 pandemic, the Russia-Ukraine war, the looting and unrest of last year, and the recent floods and infrastructure collapse in KZN are a few top-of-mind examples of shocks that have reverberated around the world and across our country. Even the Southern tip of Africa is not immune to the ripple effects of distant shocks. For proof, simply look at fuel prices.
Without knowing the exact nature of the inevitable next crisis, it is still possible to build a business that can withstand shocks and be agile enough to take advantage of the opportunities that emerge in an unstable environment.
Each crisis is an opportunity to come out stronger by applying the lessons learned to your business for the future. This may seem obvious, but it isn’t as easy as you may suppose. In good times, it is easy to forget these lessons and why you introduced certain practices in the first place. Then, when a shock hits, it becomes impossible to see a way out of the predicament without having these processes in place.
During the most challenging months of the pandemic lockdowns and restrictions, Atterbury introduced some helpful new practices to give us a clear picture of our business’s health at any moment in time. Now that we seem to be returning to normalcy, we are applying what we learned and retaining these good practices as part of the way we operate.
Gearing is key to the property development model, which is generally highly geared but with hedged interest rates to mitigate the critical risk of interest rates rising quicker than expected. The arrival of Covid-19, however, put the cash-flow side of the model under pressure. This highlighted the importance of balance sheet strength and brought about a renewed appreciation of the role a strong balance sheet (and cash flow) plays in a business’s resilience.
Robust balance sheets that include a cash buffer increase a business’s adaptability. Having the right financial, accounting, and business systems enable a company to make decisions quickly when needed. The strength of a business’s balance sheet and financial processes creates its foundation for adaptability, problem solving and excellence, and plays a pivotal role in maintaining good relationships.
For Atterbury, our improved systems include enhanced accounting and reporting systems for quick access to information, more frequent cash flow reviews and ensuring the strong relationships we have built through more regular conversations with our stakeholders remain at an excellent level. We strive to be good business associates and have always believed our success lies in surrounding ourselves with strong partners; the importance of this was highlighted to us once again during the pandemic.
In the past, a couple of engagements each year proved sufficient for our funders. During the pandemic, we were obligated to speak more regularly. Through more frequent conversations, our funders developed a deep understanding of our unique business and financial model, and we gained a clearer picture of their requirements.
Together, we moved beyond the generic industry view of property, to a deeper company-specific perspective. The property industry has been changed significantly by the impacts of the pandemic and the office sector specifically so because of forced work-from-home and new hybrid working models. Through our regular discussions with funders, it became clear, for instance, that their general concerns about rising office vacancies in the market were less severe for Atterbury. Our office vacancies are now lower than pre-Covid because our office properties are primarily in mixed-use precincts, which gained in popularity during the pandemic.
This communication and understanding proved valuable to all involved, and we intend to keep up more regular conversations with funders. In this way, and others, we are ensuring that we will never be in a situation where a sudden shift in our operating environment can knock us off course.
Embedding what we learn from each crisis into our business practices enables Atterbury to quickly find its feet when a shock hits and positions us to move nimbly to take advantage of opportunities.
These opportunities may be new or different from those of the past. It has become clear through the recent market shocks that to survive and stay strong, businesses need to move with the times. Companies cannot be inflexible and must consider innovative approaches to doing business.
It all comes down to using your money wisely to ensure you don’t miss an opportunity but also choosing the right options, whether in a challenging market or when times are good. If an investment is sustainable in headwinds, it will soar with tailwinds.
It’s impossible to plan for the unforeseen. Still, you don’t need to know the exact nature of a crisis to put sound measures in place to safeguard your business, ensure its sustainability and face the future with confidence.
DC Kemp is chief financial officer at Atterbury.