COVID-19 has inevitably affected businesses of all sizes around the world and has led to numerous financial management difficulties. Public companies, in particular, have had to deal with a number of financial reporting issues such as financial assets, preparing cash-flow estimates and recoverability of assets, to name a few.
Although finance professionals and experts are trying their best to support businesses during such tough times, there’s a dire need to balance accuracy and speed in terms of the future financial implications that this pandemic will bring.
Banks and multiple other financial services providers are also bearing the brunt of these consequences; however, it is believed that banks are the ultimate safety net that will have to save the economies from crumbling and stabilize the financial conditions.
Financial Circumstances to Consider Immediately
A plethora of implications have surfaced from COVID, where some require immediate attention due to their high impact, while others might take time to filter through.
Some of the most crucial circumstances that should require immediate consideration include:
- The availability of finance through banks, governments and other sources of finance.
- Movements in the stock markets such as pension fund liabilities and financial buffers.
- Supply chain issues
- Changes in the workforce such as homeworking, shortages, reduced pay, travel and expenses, etc.
- Financial changes including currency rates, business rates, taxes, insurance premiums, interest rates, etc.
- Contractual obligations.
Financial Management Implications – Checklist
It is important to note that the nature and circumstances of each business are very different, which means that not all businesses might be experiencing the same kind of financial management crises.
Therefore, it is important to filter out the issues faced by your business and then take appropriate measures to curtail the problem.
Cash Flow and Liquidity
Many businesses have been facing serious cash flow and liquidity problems that have further led to issues like generating cash, dwindling cash savings, finance function operations, and many others. Some are even finding it hard to update their cash flow and liquidity forecasts, given the uncertainty of the situation.
Fewer customers is what is the severe impact right now, but other factors, such as still having to purchase business items and spending money on gas for delivery businesses, to name a few are having a financial impact as well.
Working Capital and Short-Term Finance
This is another financial implication incurred by most businesses all over the world due to coronavirus. Further issues have resulted in regards to inventory, debtors, creditors, and generating short term finance.
Medium and Long-Term Finance
This includes factors like equity, debt and dividend policy where businesses might need to take advantage of low-interest rates, consider a capital injection, which, however, isn’t likely to be available and also consider reducing dividends.
Financial Risk Management
There’s a lot of risks involved for businesses such as currency risk, problems with insurance, general risk management, discrepancies in the supply chain and overall general risk management.
Financial Controls
This includes changes in company policies and operations, the unavailability of systems to give procedures for record-keeping, authorization of expense policies, internal recharges, and balance sheet reconciliations, to name a few.
How Can Businesses Deal with Financial Management Problems?
It’s quite hard to propose exact or precise solutions to financial management problems that businesses are facing these days, mainly due to the overriding uncertainty caused by the pandemic. However, there are many ways through which businesses can deal with these problems by considering some of the following options.
- Carrying out tasks within the presently available finances instead of creating additional burden or workload for other departments.
- Find new, creative ways to produce paper-based products such as invoices and checks to cut back costs.
- To generate short-term cash, businesses can look into vouchers, discounts, and offers to boost demand and, in turn, create some income.
- Developing new ways to carry out banking necessities and accessing payments.
- Save immediate cash that may come from factors like event cancellations and travel bans.
- Contacting creditors and asking for assistance.
The Role of Banks In the Current Financial Crises
As mentioned before, banks will simply have to step up, and for that, they need to provide companies and businesses with all the financial help and support they require for survival.
From development loans such as the KfW loans in Germany to dedicated funds such as the German economic stability fund, the application of all these requests from small to medium-sized enterprises need to be processed and approved as soon as possible.
Banks are required to play a double role where they extend financial and monetary help to businesses on the one hand, but on the other hand, they need to balance security as well.
Financial institutions further need to take into account and address topics like suspension of mortgage payments, governmental stabilization measures, and deferral of loan payments, among many others.
Furthermore, there’s a dire need to promote digital transformation in banking as most departments are working from home, and so many countries have imposed a serious lockdown.
Financial institutions need a digital transformation in order for them to be able to extend their services to business partners and companies.
Key Takeaways
As the current situation still remains uncertain and risky, businesses and financial sectors need to adopt strategic measures in order to deal with the prevailing financial problems. From being alert to new opportunities and reinforcing different kinds of policies, everyone needs to be vigilant of the situation at hand.