The outbreak of Covid19 worldwide has brought the world economy on standstill as all the businesses are badly affected due to the lockdown. This instance has even challenged the sustainability of the businesses which are more leveraged or financially not sound.
There are two important questions to answer in this situation:
First, how to deal with current crisis situation and take care of our business associates, employees and resources and secondly, how to be ready in future so that our organizations can sail through these unforeseen turbulent times which are not in control of anyone.
How to handle the current situation? The senior management team and leaders in the company should have to be patient, optimistic and have to reach out to there employees that “All is Well” and things are under control.
In this difficult time, the organizations should take care of its people irrespective of the damage which has happened due to the financial losses happened due to lockdown as people are our best resources and the organizations win or lose only because of the people who made those organizations and they work hard to achieve the objective of organization and make it successful.
Going forward the below steps may be considered by companies to be better prepared to sail through these times:
- The Risk Management Policy should be in place and should be reviewed regularly and it should include the coverage of optimum insurance plans to tackle these extreme situations which are not common but if happen could challenge the business continuity.
- The Equity Structure should be well-defined and financial leverage should be kept in check – the more leveraged the company, the more chances of default in these difficult times.
- The small and medium-sized organizations should give more focus on making the finance function and processes strong. This will help them in having efficient tax structures and good reporting systems will also help them in bringing efficiencies in operations. If they cannot afford the full-time CFO/Financial Controller, they may use the services of agencies providing the CFO services on retainership basis.
- The working capital cycle should be managed more efficiently and the investments in current assets should be reviewed on a periodic basis and focus should be made on releasing the excess amount stacked up in working capital. The strong reporting system will definitely help in this.
- While planning for the business expansions the promoters and the business executive teams should be more realistic and plan for the situations where they have enough coverage for interest and instalments of loans for few months.
- The ‘force majeure’ clauses can be added in Lease Agreements of offices, warehouses, factories which allows for rent waiver in these kinds of extreme conditions where business stops due to events not in control in management.
- The cost structure of the company should be designed in a manner that fixed costs to be at optimum/minimum level and the variable cost structure should be in place.
- The employee’s salaries above a certain level should also be a proper mix of fixed and variable components which can help an organization in tide over the situations where the profits targets are not achieved.