Thinking now and beyond
The lockdown eased and businesses started to return their normal operations. After an immediate wave of recovery, there is now a clear picture of the economic slowdown.
Latest figures released by Bank of England show that the UK economy will shrink by 5% in 2020 and will only go back to its pre-pandemic peak at the end of 2021.
On the other hand, IMF, OECD, and WTO paint a darker picture for the world economy. This is the worst economic fallout since the Great Depression, the major economies are expected to show a negative growth by 8%, and even though the early pessimistic scenarios are not likely the world trade is still expected to decrease by double digits in 2020.
There is a lot of news about the businesses shrinking and jobs lost in the papers every day. Companies must tighten the screws to get most of everything from their operations.
Managing for efficiency
When there are limitations on revenue generation, companies focus on increasing efficiency of their existing operations. To improve their cash flow when the revenues are flat, companies try to decrease their debtor days and spread their payables in time as much as possible.
Decreasing the costs, managing the procurement for achieving better payment terms are desired outcomes under the current conditions.
Credit control is another concern that requires the attention of management.
According to EY UK, bank lending to firms surged to a 13-year high as COVID-19 led to UK businesses borrowing more, and consumer borrowing is expected to show the biggest fall since 1993.
While businesses are getting into more debt in their struggle to survive, the consumption shows a decreasing trend. Non-performing loan book and overdue receivables will inflate under these conditions. Keeping credit sales at low levels, closely monitoring financial conditions of debtors and taking actions with the early signs of deterioration in credibility, invoice financing, selling long-standing non-performing loans and receivables may help to manage the credit risk and exposure to bad debt.
Looking beyond the crisis
The businesses must consider these measures as pieces of a forward-looking strategy. Progressing with a vision for a post-crisis economy will be as important as surviving the crisis today.
As we are progressing through these unprecedented times, the outlook for the economy remains uncertain. The forecasts on the near future will be affected by the evolution of the pandemic.
We are following the news, examining reports on the economy and scanning through all kinds of resources to gain some insights about the direction we are headed on. Businesses must analyse the worst and best-case scenarios incorporating internal and external parameters to support their strategy making under uncertainty.
Following major clients in social media or other platforms, seeing how they are affected by the crisis and how they respond to it can help to build an opinion about the near future.
Meeting advisers more frequently, whether they are tax advisors, auditors, or consultants, is another way to gather insights, as they have exposure to a portfolio of clients and have a vision of the markets with this exposure.
Growing during the recession is unlikely unless you are in one of the lucky few sectors which benefited from the lockdown. But paying attention to business metrics and getting the most out of the current situation will at least minimise the harm.
The crises call businesses for change and transformation; being responsive to changing conditions will bring a competitive edge for survival.
Teoman Akyuz, 10 August 2020
This article was published at LinkedIn on 11 August 2020