Question

Given the recent COVID pandemic, discuss how you would prioritize cash and capital for a business? Be specific. Discuss what you would put on hold, types of government programs you would take advantage of, cash flow strategies, and capital strategies. Discuss how you would plan to bring the business back up to speed once the economy starts to open up.

Our current situation is a great example to think about what types of emergency procedures you have from the perspective of business finance. Understanding the levers you have available and need to pull in order to keep a business up and running at a minimal state.

As a last part of the discussion question, think about and discuss ways you think the world will be different in the future. How will the business you discuss above, be financially ready for a similar situation.

Answer 1

COVID 19 Pandemic – Impact on Cash flows of the businesses

AS we all are aware, Covid 19 Pandemic has taken over the world at halt. Everything in the economy has come to a halt and it is having a great impact on the business and economy of every country.

The focus of businesses now has been shifted from making strategies on profit or making investments for growth of the businesses to the survival of the basic businesses.

Every business is now thinking of how to survive during this pandemic when still the actual impact on economy is unknown.

With limited cash flows, Organizations are actually strategizing their Cash flows so that they can survive the pandemic with lesser impacts on their profits. Businesses with low cash reserve or unstable cash flows are most at risk. However, those businesses which have good profitability may not be able to respond to this situation with great positivity. It all depends on how the earlier the demand and supply chain will be back to normal

Businesses that are hard hit with this pandemic are travel and tourism, air transportation, hospitality industry, oil industries and entertainment industry.

Now the question has arisen as to how to prioritize the cash and capital of the businesses. Every organization is now planning to make short term cash strategies in order to handle the situation with utmost care to reduce the impact of COVID 19 pandemic on their businesses.

1. Revisit Cash flow statement by reducing non essential variable costs. It is the time to revisit the cash flow statement and manage the cash in such a way to ensure less impact on the profitability of the businesses. Cash inflow has reduced manifold in some cases to zero in other cases, which is not in our control in the current scenario. However, what we can control or manage are the cash outflows and think of reducing the outflow by decreasing non essential costs like, travel ban, putting restrictions on non essential meetings, freezing new hires, minimizing training costs no or minimal spending on advertisements or business development costs.

2. Revisit Capital investment Plans. The plans which are already in progress, needs to be re assessed. Whether the capital investments are still required? If the capital investment plan can be postponed? These questions should be revisited and an organization has to re-plan or adjust their plan accordingly.

3. Inventory Management. The company should re assess the stock. Company should re examine the inventory considering the demand and supply chain again after this situation occurred. How much is the demand? How much raw – material is still available? Do we need to re assess the finished goods inventory? These questions should be re assessed.

4. Strategize Supply chain risk. The supply chain is highly impacted by this pandemic. The customers are in trouble and may not be able to pay for the goods or services in time. If the goods are ready, there are chances that the customers are not available to take up those products, or such goods if needed to deliver outside the borders, that may not be possible due to lockdown restrictions. So, one should give these entire situation a thought before re- starting the businesses again.

5. Increase your payables and receivables time period. There will be delay in payments or there are chances that payments will not come. There may be chances that there will no sale of the goods that was ready to dispatch before this pandemic. So one should be considerate about these factors and plan their payables accordingly. This can be one of the ways to preserve the working capital of the organization.

6. Convert fixed costs to variable. A need is also popped up to understand and analyze the situation wherein, fixed costs of the organizations can be converted to the variable. Selling assets or leasing them is one of the options to fund the company or implementing contract manufacturing, transport fleet leasing or third party warehousing are the other options to reduce the fixed costs.

7. Using government funding or government relief programs. To protect the interest of the businesses, government is also making efforts to provide relief to the small manufacturers or businesses to overcome the situation. The government has provided many reliefs to the sectors so that the companies can come out from this situation. Reliefs like tax deferral plans, extension of dates, and relief from penalties, cover up of purchase orders, providing low interest loans and providing funding to the organizations.