pandemic corporate financial solution

Top 4 Corporate Finance Strategies And Solutions During COVID-19

Hit by the Covid-19 slump followed by social distancing and a nationwide lockdown, businesses in Malaysia (and globally, for that matter) are experiencing major impacts.

According to a recent survey, around 33.3% of SMEs stated they only have enough cash flow for March 2020, while 37.8% can only sustain up to April 2020.

Therefore, during such testing times, businesses will have to adapt to a new set of rules and be mindful of the following aspects to alleviate risks and to survive the slowdown caused by the impact of Covid-19.

1. Managing cash flow and liquidity 

Maintaining healthy cash flow is essential for a company to stay in business as prolonged negative cash flow may lead to a bank overdraft, or worse —bankruptcy. Since the outbreak started, it is difficult to keep positive cash flow for most businesses and the change in customers’ behaviour has forced companies to move at an unprecedented speed to serve their customers with quality while caring for their employees with compassion. Therefore, one key measure to cash management is to limit cash outflow by reducing costs. This can be achieved by making your assets more liquid. Having assets with high liquidity has been proven effective in settling short-term expenses and debts because of its ease in conversion to cash at a short notice. So, business owners should improve their asset liquidity by financing through factoring or negotiating longer payment cycles with vendors. Companies should also start focusing on the disposal of inventories and non-core assets. The amount of cash raised through divestment activities may be used to reinvest in other parts of the business.

2. Reduce debt

With the new reality being that the labour market has a surplus of workers as an aftermath of the ongoing demand-deficient recession COVID-19 has caused, it is the best decision for fellow Malaysians companies to capitalize as much of the government aid as one is eligible to. For instance, business owners can reduce costs and liabilities through the discounts in rent, water, and electricity bill included in the government package . Moreover, those owning businesses should look into a loan, especially since the interest rate has dropped to 0%, in order to fund whatever business expenses which still occurs (such as machine running costs) despite a null in revenue. They should also capitalize on the RM800-1,200 monthly wage support  if they are employing 75 or fewer people. Indeed, we shouldn’t be shy to receive help from the government, more significantly if it meant detrimental losses.

3. Reduce expenses

In a time when our economic situation almost matches that of the 1929 Great Depression, we should take precautions and sometimes, ill-disposed steps to keep our business afloat. That means cutting down costs in unnecessary areas. Business owners should look back into reducing production, manpower, processing costs and halt activities which drive the most expenses in the business, especially when said activities are not essential and bring little profit to the firm. Furthermore, business owners may need to re-consider to hold any future investments not only because of the economic uncertainty of the future but also because it is extremely risky to continue with any type of projects when there is negative cash flow. Therefore, it might be a better decision to focus on minimizing your losses rather than embarking on new projects. 

4. Create new revenue streams

Indeed, what has become apparent to business owners is that they could not rely on a singular stream of income because it is more prone to collapse in a recession such as the one we are currently facing. It is significantly vital in providing a safety net not only for you as a business owner, but for your other businesses as well. For example, the profits obtained from one successful business may be utilized to fund another business from going bankrupt. Moreover, business owners should realize by now that the money is in online commerce. Social distancing measures presented online entrepreneurs an opportunity to push their contactless services to consumers looking for a way to spend in regards to coping during the pandemic or even post-pandemic. Furthermore, if neither government aid nor creating new revenue streams are sufficient in keeping your business afloat, now might be the time to release any trapped cash you have stored overseas. 

Conclusion

In a nutshell, in order to set your financial planning straight, you need to manage your cash flow. It is acceptable that you face losses in the upcoming months, but it is vital that you keep them to a minimum by reducing your expenses in unnecessary areas, capitalize on government aid, and halt any future investments for the time being. Besides that, business owners should improve their cash flow by creating multiple sources of income, especially ones that require little human contact. All steps are necessary as starting from now, we should plan for the worst-case-scenario and also for post-MCO whereby the economy recovers. At the same time, we should allow for some flexibility in our plans and actively adapt according to the dynamic business environment, at least until things begin to settle down.

 

If you need assistance on how to re-structure and plan your corporate finance for this critical period, do contact Easi Wealth for a free consultancy. 

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