Question

As a result of the pandemic, several manufacturing organisation have had to cease operations. While operations have ceased, fixed costs (utilities, building rentals, wages, etc.) are still incurred. How can organization overcome these costs without revenue from sales?

Answer 1

In the current time of Pandemic, manufacturing business has suffered the most. Various level of lockdowns does not allows businesses to operate at the level they require to fulfil their present fixed cost.

In this scenario the government role become much of important to save the sinking businesses. If government provides stimulus package then there is possibility that businesses might not sunk. The stimulus package may have clause to compensate directly for the fixed cost incurred by businesses to provide a status quo, as it was before Pandemic.

Another option may be to provide interest free loan with high duration so that, businesses will be able to pay fixed cost they incurred currently.

Hence businesses have 2 options which seems viable, as of now-

1. Use their own contingency reserves created to deal with this type of situation.
2. Depend on government for stimulus package.

In current time of Pandemic taking loan to pay fixed costs might not be viable option,as this Pandemic is not yet over,it will take months or years to be back on track.

Hence obtaining loan may increase another fixed cost.

However government is also trying to ease some of economic burden on the businesses by means of providing relief in various return, payment of taxes etc. Half push by government and half by businesses owner may take their boats to sides.

Hope the answer had something which was useful.

A deep analysis could be done.

Thanks,