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Impact of COVID- 19 on businesses and how to mitigate the adverse effects?
Hope you and your loved ones are safe and healthy during this major crisis of COVID-19 pandemic.
As there is a complete lockdown and almost all of the economic activities are on hold, the economy is facing a major risk of recession and slow economic growth. According to a study, India’s Debt-to-GDP Ratio is likely rise at 76% from 70%. During these tough times with no revenue, it becomes imperative to have a holistic approach and redefine our business practices. It is time to introspect the impact of the lockdown and take measures to minimize the same. As the day-to-day activities of businesses are on descent, it is a good opportunity for entrepreneurs to analyze their businesses. This will not only help in minimizing the impact in the aftermath of the COVID-19 crisis but also will help in the long run and change our business approach.
Below are the certain pointes to be considered:
- Business Data Analysis: The most important attribute of data is that it should be accurate, quick to compile, and easy to structure to be useful for business analysis. One should analyze the business data available in such a manner to check whether any important information can be obtained. Businesses should realize the power of data and work towards compilation, structuring and analysis of the same.
- Cash Flow Management of business: Business houses should prepare a projected cashflow statement or revise already prepared cash flow to analyses cash requirement of the business in short term as well as long run. Focus should be on re-prioritizing outflows. This may include deferment of expenditure, offering rebates for early realization of receivables etc.
- Control Costs / Reduce Costs / avoid non important expenditure: Businesses should perform critical analysis of their costs. Breakup of costs into direct, indirect, variable, fixed etc. can play an instrumental role in identifying potential costs which can be controlled / reduced. Businesses should consider re-negotiation of contractual costs for the period of crisis, use of covenants in contracts such as force majeure, avoiding certain costs etc.
- Focus on Inflow: As the saying goes, ‘Revenue is Vanity, Profit is Samity but Cash is Reality’, it is absolutely necessary to ensure the influx of cash to face the liquidity problems businesses might face in the aftermath of the crisis. Apart from saving cash by controlling or reducing costs, businesses should also focus on realization of cash and establishing alternate source of inflow. Ageing analysis, ratio analysis, breakup analysis, discussions with parties etc should help in deciding future course of action. Special attention should be paid towards high possibility of bad debts due to economic conditions to avoid last minute surprises.
- Benefit from Government Relaxations / Schemes: Businesses should ensure best use of government’s policies and schemes such as extension of due dates for return filing, moratorium on loans, tax benefits, compliances benefit etc. These can play a pivotal role in tackling the liquidity problems as well as controlling costs.
- Mitigating Crisis / Turning Crisis into Opportunity: The businesses need to think and innovate. Mitigation of crisis will need proper planning, innovative thinking and leadership skills. Care should be taken that the workforce is sufficiently motivated. A mitigation plan enlisting roles and responsibilities should be formulated and implemented.
Hope the above points will help you in minimizing the impact of COVID-19 on your business.
