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Ensuring Financial Stability Amidst COVID-19

The COVID-19 pandemic is inarguably the biggest trial the financial system has ever faced to date. This worldwide health crisis has produced an unparalleled “macroeconomic shock”, thrusting the global economy into a recession of an undetermined scale and period. 

Because of COVID-19’s direct impact on businesses, there needs to be an aim to protect financial stability as well as its “liquidity”. In a time when the markets, operations, and revenue could be fast-changing, business owners must react rapidly to a change in cash and capital. 

What You Can Do Now

With the current COVID-19 crisis, you need to analyze what the “short and medium-term” financial implications will be for your business. As this will directly impact your operations, get ready to “prepare, project, and respond.”

Here are more specific actions you can take:

  • Examine your short and medium-term cash flow predictions.
  • Produce financial projections based on a different variety of scenarios.
  • Update your budgets and business plans.
  • Check the efficiency of your current reporting tools and systems.

Making projections and forecasts for all prospective cash flow is a critical part of planning for a crisis. Consider different scenarios and “what-if analysis”. This can include a sudden drop in sales or a sharp dip in revenue. Also, be ready to modify them regularly. This “scenario planning” will equip you with the confidence you need to make better decisions on your response strategies. 

Also, you need to incorporate the direct impacts due to COVID-19. This can include issues such as operation restrictions, disruptions in the supply chain, and customer demands. Carry out “sensitivity analysis” and consider worse-case scenarios. Don’t forget to include fluctuations due to foreign exchanges on your cash situation. Get ready to have “operational contingency plans” to mitigate any interruption to your business. 

Determine where you can lower costs and where stock liquidation can take place. Take a look at your loans and identify any flexibility clauses. Appraise the value of your inventory, intellectual property, and any receivables. Ask yourself if you have access to government assistance, if need be.

More Ways To Take Action

Once you have clarified your cash position, it’s time to clearly communicate this with the leadership of your organization and ensure immediate action and compliance. Continue to explore more ways to conserve your cash. Some ways you can implement this is by cancelling any orders that are not essential and perhaps consider four day work weeks. 

Look outside your organization for help. If you need extra financial support, seek help  from your current lenders. If that is not possible, look to alternative financial providers. 

Uncertain Times

If the COVID-19 health crisis is not enough, now you are faced with what seems like insurmountable challenges to keep your business from closing its doors permanently. Your challenges as a business owner are operational as well as financial. However, there’s still hope to steer your ship successfully amongst the rough waters. 

The key is to develop a strategy where you prepare your business for the worse, having a contingency plan that would have you ready for any turn of events. Seek professional help to assist you with evaluating your “financial processes” such as setting up your cash and working capital positions, help you with any financial projections, and finally advice on complicated accounting matters. This will ensure that you will be equipped and ready for any new wave of challenges that your business will face.