Importance of Proactiveness in Debt Management

Proactive planning can tide Kenyan firms over finance storms

Strong foundations in stormy weather

Business managers focused on growth tend to think primarily of increasing revenues and limiting operating costs, with less thought given to the cost of capital. However, in a changing business environment, particularly an inflationary one with rising base rates, a company’s financing becomes a critical factor.

Being proactive in this regard, by ensuring ahead of time that your business is optimally and sustainably financed, is often the difference between success and failure when stormy weather comes.

In the last two quarters we have been approached by many Kenyan businesses in need of urgent support dealing with burdensome debt obligations, some of which were allowed to escalate during the COVID-19 period when financiers were more generous with payment holidays and other reliefs for borrowers. Most of these situations could have been avoided by proactive behaviour earlier down the line: reviewing existing financing options and understanding alternatives in the first instance; and, where necessary, acting on that information, engaging positively with lenders and ensuring the strongest possible foundation.

Objectives of Debt Finance

Debt finance should be a helpful tool - a platform to enable growth - rather than a burden. For this to be the case, debt facilities should be well-structured on day one, with covenants set in line with a realistic business plan, and a positive relationship established with lenders.

There are other considerations too, such as matching the tenor of facilities with their purpose (and not, for example, using long-term debt to fund working capital); and, of course, minimising financing costs through intelligent negotiation.

Benefits of Proactiveness

Too often have we seen businesses acting too late: covenants breached and lender relationships damaged, leaving uncertainty about the future. Proactive planning can prevent this, allowing a business to:

Conclusion

Acting now can only be beneficial for management and shareholders.

PwC Kenya has a specialist debt advisory team who can help you assess debt capacity and sustainability, perform an options review, and run a (re)financing process to ensure optimal debt terms. We maintain strong relationships with East African lenders and can help you navigate a path to a strong, stable and successful financing solution.

Please do not hesitate to contact George Weru (Partner, Advisory) and Isaac Otolo (Partner, Advisory) or Rory Buchanan (Manager, Advisory) if you would like to consider options around how your business may benefit from the strongest possible foundations for whatever weather lies ahead.