Many people could be going through financial emergencies and related stress made worse by the COVID-19 pandemic which has slowed economic activity down. Its effects may continue for some time depending on one’s situation. In life almost all of us experience financial emergencies, one way or the other and solutions have to be found.
Examples of financial emergencies
We all go through financial emergencies whose sources and implications are numerous and diverse. Examples of such emergencies include medical situations, loss of employment, struggling businesses, failure to service debts or pay school or university fees, business or personal debtors not paying, litigation, separation or divorce and many other situations.
Financial emergencies are filled with emotions and there may be limited time to explore options. Emotions may block one’s ability to think or even affect health. However, most problems do not disappear.
How to address financial emergencies
The options explained below, not in any order, may assist.
- Admit. Accept the reality that there is an urgent financial situation which is affecting you, your family or business and needs financial resources to resolve it.
- Seek assistance. Depending with your circumstances seek assistance from trusted people such as family members, close friends or professionals in time to minimise damage or salvage something. Professionals might include finance people, lawyers or business advisors. Public sympathy may not necessarily solve your problems. Also avoid bitterness.
- Communicate. Communicate honest factual positions on time, not piecemeal. It may be costly to misstate a position or withhold certain vital information.
- Accommodation. If you do not own a house make sure you have decent, affordable accommodation for your family.
- Debts. Reduce interest bearing debt first. Also consider negotiating a moratorium, repayment terms, tenure, interest rates, loan type or structure, sale of assets and use the proceeds to extinguish the loan.
- Bridging finance. If you have the capacity to repay later you may consider seeking bridging finance through borrowings.
- Look at assets. Look at the assets you have especially liquid ones. Consider selling non-core or redundant assets such as motor vehicles, non-income generating immovable properties such as stands, low value immovable properties, etc. Resort to liquid assets first. Safeguard your family home if you have.
- Lifestyle. Adjust your lifestyle by reducing expenditure. This is easier said than done. Understanding the need to do so is one thing but implementing is quite another. This can be a source of emotions, tension or even conflict. Pressure usually comes from trying to keep up appearance or maintain certain levels of comfort.
- Litigation. If you are facing litigation do not ignore processes. Engage a lawyer as soon as possible. Consult on options available and for each the cost, duration and likely outcomes. Care is needed in labour cases as an employee may soon run of out of resources if suspended without benefits or is terminated.
- Separation or divorce. Manage emotions, engage and negotiate if there is room.
- Schools. For school fees consider meeting with the school authorities to negotiate payment plans. If your situation will not improve soon you may transfer your children to affordable schools. This is a tough decision.
- Struggling business. Where your business is struggling understand the reasons thereof and map the way forward. It could be the general economy, factors specific to your industry or your entity. Engage professionals such as business or financial advisors to assess your business and advise you on how to revive the business or to exit. Be realistic whether you still have a viable business.
- Adapt. Change to remain relevant. The world is dynamic.
Godknows Hofisi is a legal practitioner, chartered accountant, corporate rescue practitioner, and consultant in deal structuring, business valuations and tax. He writes in his personal capacity. He can be contacted on +263 772 246 900 or gohofisi@gmail.com
