Financial management in COVID time

The economic and financial impact of the COVID pandemic started to have greater impact in April this year. We are now on the late 3rd quarter of the economic recession and it has been devastating many business and family finances. As a former UP professor in Finance, an SGV Consultant, an investment/commercial banker and a businessman, I had wanted to write this column last June. However, I have management responsibilities in four companies and the more immediate task was to address the issues and stabilize these companies. After 50 years of work, I had experienced at least five major financial upheavals including the Aquino assassination, the martial law years, the Asian financial crisis, and the Wall Street meltdown. This COVID pandemic have bigger global effects, deeper recessions and may last longer.

At the onset of the pandemic economic effects, the primary concern should be Liquidity or immediately available cash for the business, because the lack of liquidity stops businesses instantly. Identification and marshaling of cash and near-cash assets, including receivables, inventories, and supplies are done. Access to financing from banks and suppliers are also evaluated and get committed as backup sources. Depending on the size and kind of business, which defined the balance sheet structure, this exercise maybe simple or complicated, but necessary to assess the short-term business survival. This is also important to assess your social obligations to your employees in terms of the assistance you may be able to give them.

If you still have your business going after seven months of recession, it means you have enough resources to continue but have to evaluate and plan on how to proceed profitably. The greatly-altered business environment is giving you the new marketplace and your market, the modified supply chain, and financial landscape. You now have to redefine your “business model” taking these into account in relation to your financial, human resources and physical facilities. A micro-economic analysis of the new “break-even point”, capacity utilization, manufacturing and sales processes and available finances. Available cyber technologies for manufacturing and marketing will be useful but cost-to-benefit analysis has to be rigorous to optimize results. Capital investments which were mostly reduced or deferred during this pandemic have to be re-evaluated to achieve projected return on investments. The result of all of these will be a business plan which will guide you in the next two years at the very least.

In all likelihood given the pandemic still ongoing, 2020 will not be a very profitable year. Most large businesses and conglomerates have already declared losses or lower earnings, and most MSMEs will be in the red. Aggregate demand from consumers and businesses will probably get back in 2022 to the same level as 2019. This means that 2021 will be the year that you will reconfigure your business, streamline all the processes, and poise for growth and profits.

This is actually easier said or written down than done. In reality it needs a motivated team and purposeful leadership to get implemented. It needs a good management, supervisory structure, competent associates, and inspiring leaders. Good governance which are accountability, ethics and transparency which is based on truth and justice are necessary ingredients. This is applicable not just to business organizations but also for governments and nations. This is also true for any organization or any group of people with a purpose, including our families.

By now, I’m sure the big business groups all over the world, and some countries have done these on their organizations, hopefully our government is doing the same.