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COVID-19: Economic Impact of the Pandemic

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In the past months, the world economy has been transformed due to the COVID-19 pandemic.

How Does This Outbreak Harm the Economy?

The International Monetary Fund (IMF) said it’s very likely that this year the global economy will experience its worst recession since the 1930s.

However, it also mentioned that it’s essential for governments to take strong measures to keep businesses from going bankrupt and workers from losing their wages.

COVID-19 can damage the economy in three main ways:

  • by directly affecting production,
  • creating a supply chain and market disruption, and
  • by its financial impact on companies and markets.

These potential scenarios are subject to the relationship between populations and the disease, which means that the impact of COVID-19 on the economy will depend largely on how people react to the virus.

What Can Business Owners Do?

According to experts, for every month of lockdown, the economy will remain in low gear for another six months.

Only companies that are well-equipped will be able to cope with the dry spell that lies ahead.  

That’s why businesses, regardless of their size or industry, are required to make decisions related to four factors.

  • Finances
  • Marketing
  • Operation
  • Human resources

Such decisions will be essential to map out integral strategies for the “new normal”.

What Are the Steps in This Decision-Making Process?

Analyze your financial performance with the following reports or records:

  • Balance sheet
  • Income statement of the last quarter
  • Cash flow statement

Balance sheet items:

Assets

  • How much cash is available?
  • How much is invested in inventory?
  • How much is owed to the company? (accounts receivable)

Liabilities

Make sure to know how much is payable to

  • Providers
  • Investors
  • Creditors

The income statement for the last quarter:

  • How much revenue was earned in January, February, and March?
  • What products or services were sold?

Both answers will help you forecast future sales.  

  • How much is spent on operations each month?
  • What sales volume is needed to cover fixed expenses?
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The latter question refers to the break-even point (BEP) formula.

Cash flow statement:

  • How much cash went into and out of the company in January, February, and March?

Based on this question, you’ll be able to calculate profits within the quarantine period and draw up a budget for April.

Once you have a figure, you’ll know the answer to questions like:

  • Will you be able to maintain your payroll?
  • Will you be able to afford rent? (in case you entered into a commercial lease)

How Can You Create Your COVID-19 Recovery Plan?

Whether lockdown is soon lifted or not, you can think ahead for the next:

  • 3 months
  • 6 months
  • 1 year

It’s worth mentioning that decision-making will become necessary for the unforeseeable future. It’s advisable to engage in strategic planning every 15 days to monitor the status of your business.  

To sum up…To plan for the future, it’s important that you take into account your company’s financial statements and projections.

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