- Market uncertainty can be terrible news, particularly for businesses that prefer keeping cash on hand regardless of declining sales due to the COVID-19 impact on the economy.
- IMF projects global growth at –4.9 per cent in 2020 and experts suggest that majority of businesses are facing cash crunch owing to COVID-19.
- At the back of recovering and reopening economies stimulus packages and digitisation, recuperating over Global Virus Crisis has started to seem achievable.
A famous proverb states- “Revenue is vanity, profit is sanity, and cash is a reality.”
Irrespective of their size and offerings, majority businesses across the globe believe that knowing far ahead of time whether they are heading into a cash crunch, enables them to make better decisions, also ahead of time. Maybe this is why keeping projections updated and efficiently managing cash flow is of paramount importance to all businesses.
Of late, the coronavirus pandemic has endangered liquidity situation of not only small and medium enterprise firms but large listed firms too. Though silver linings have appeared with the lifting of lockdowns, easing of restrictions, phased reopening of economies, and hopes for a vaccine in as soon as possible, there is no denying the fact that businesses have been cash-constrained and fear of a global cash crunch looms over us.
Cash Crunch Fear Amid COVID-19
Fear is a normal part of life. But what makes it a cause of concern is the fact that it can pop up often when one least expects it. Once this happens, the only option left with us is to accept the harsh truth, brace up and take action to weather the storm. The COVID-19 pandemic has brought along a number of such fears - human health is at high risk, economic growth seems to falter worldwide, businesses and markets have suffered amid lockdowns and quarantines, all while the field of medical science continues to be on the hunt for a vaccine.
Another fear that continues to give sleepless nights and agitated mornings to business owners is that of a cash crunch - a state when a business organisation does not have enough cash to operate effectively or in a typical manner.
Experts have opined that more than half businesses/ companies have experienced a revenue decline compared with the same period last year and only a handful have reported an income rise. This means that very few businesses believe that their cash on hand would allow them to survive roughly a few weeks, and many suppose that existing cash on hand would not be ample enough to maintain operations.
Let us take a couple of examples from across the world to understand COVID-19 infused cash crunch:
In Thailand, sales of bonds issued by top companies have reportedly been slower than before the virus outbreak, raising fears of a liquidity crunch. This has further prompted a challenge for businesses that have bonds due to mature this year.
Saudi Arabia and UAE businesses too continue to battle the cash crunch in the face of the pandemic. In the energy-producing Gulf, the situation has only been worsened by oil price slump with giant state oil firms tightening belts and issuing directives for cost cuts.
In Australia, SMEs, that need more support in managing cash flow, regardless of the crisis that has unfolded, were already struggling with cash flow prior to COVID-19 and the subsequent shutdowns.
Cash Crunch Rescue - Silver Linings Exist!
It is evident that COVID-19 and a volatile global economy can escalate pressures of managing cash. But there are measures that should be looked at to proactively manage natural ups and downs of business income. Let us look at three such rescue measures:
- Stimulus packages injected by governments across the world can be of great aid to businesses that have suffered repercussions of the pandemic. To know about Australia’s take on its stimulus package, READ HERE- Is stimulus package really beneficial, or is it just delaying the inevitable?
- In the US, the Federal Reserve relaunched Commercial Paper Funding Facility to purchase commercial paper and short-term, unsecured loans obtained by businesses for everyday expenses.
- Banks and credit unions have a vital role to play as systemic stabilisers. Besides keeping a low-interest regime intact, they have launched low-cost, short-term loans that may aid in riding through this storm of squeezed incomes and liquidity crunch. For one such option - COVID Hardship Loans, CLICK HERE - Pandemic Rescue Plan: Are COVID Hardship Loans Primary Need Of The Hour?
Bottomline - What Can Businesses Do?
While financial crunch and anxiety are ubiquitous in the current volatile environment, and economists are hinting towards a deep economic recession, there is no denying the fact that Cash is King. And there is no denying that there are some encouraging signs on the recovery scenario too. While businesses suffer cash crunch, it is time to look for measures that will help and bring them back on their feet because COVID-19 is a reality we need to accept.
So, what can businesses do? And what should they avoid? Let us cast an eye:
(Please note that the above should be regarded as perception, not a recommendation)