Many comparisons have been made between the great financial crisis of 2008 and the financial impact of the Covid-19 pandemic which has hit businesses across the globe.
While similarities can be drawn, the current crisis brings with it a set of unique challenges that businesses need to navigate, including adapting their working practices to facilitate social distancing and in many cases, managing remote workforces.
Navigating government regulations to get businesses up and running as we ease out of lockdown is going to come at a cost says our Chief Economist, Jeremy Thomson-Cook.
“The sea-change in how businesses must operate, from increased cleaning and implementing the right level of protection at work, to working from home and remote set-ups, is going to put a lot of pressure on businesses. As soon as you can cut those costs or mitigate them, the better.”
But aside from keeping a watchful eye on short-term costs, what lessons can businesses learn from the 2008 crash to see them through this crisis?
Cash flow is crucial
“Cash flow is the breath and blood of a business, and without it, you simply don’t have a viable business” says Jeremy.
“Hopefully, businesses have learned from 2008 that you always need a certain level of cash flow. This will make sure operations are ongoing, even if funding, markets, or provisions such as overdrafts and loans dry up or become prohibitively expensive. Put simply, businesses need to have cash on hand to pay the bills.”
Having efficient money management measures in place while businesses resolve any payment issues with finance departments will also be vital for safeguarding cashflow. For example, businesses may also need to consider re-negotiating terms or break clauses in contracts.
Know your pain points
Is it the case that your business only sells one product? What happens if the market you operate in dries up? Does that mean your business dries up?
These are all questions businesses need to ask themselves. “Understanding where your business is exposed will help its survival through this crisis. You need to know where the weak spots are and, where possible, pivot your business around them to meet customer demands.”
But businesses need to be mindful that these pain points may differ to those faced in 2008 because of additional obstacles including lockdowns, travel restrictions and social distancing.
Long and complicated supply chains could become tangled in the fall out of Covid-19, so these should be reviewed too, says Jeremy.
“Currency is always at the forefront of how the market expresses its fear due to any uncertainty” explains Jeremy.
Businesses dealing in multiple countries will be used to navigating a certain amount of volatility in exchange rates, but a global pandemic on this scale can bring huge fluctuations in the market.
In March alone, sterling saw a 5% drop against the euro and 12% drop against the US dollar in the middle of the month compared to the start of the month.
“Businesses need to understand whether they can withstand huge moves in receivable currencies, and if not, they need a back-up plan.”
Prioritise open and honest conversations
Much like the global crash of 2008, the Covid-19 pandemic is impacting businesses of all sizes and in all sectors. Having open conversations with other businesses, especially those you work with closely, is important for survival.
“There’s no point in sitting there thinking that as long as your business is okay then everything is fine, because if everything else falls apart your business won’t survive. It’s a ripple effect and businesses are all in this together.”
Whether its retailers selling your product, or companies working in the supply chain, businesses need to understand what the risks are for them and what can be done to fix them.
For international businesses, speaking to chambers of commerce, foreign suppliers or foreign distributors can help to build a better understanding of what’s happening on the ground and how your business can take advantage.
Don’t cut back
It might sound contradictory but cutting back on investment is not something businesses should rush into, if they can help it.
“Pulling back on investment is something businesses will want to do because it seems like an easy way to cut costs. However, the ones investing in technology, people, research and development, product lines and logistics are the businesses who will thrive.”
Investing in your company will help you move forward, but if you wait until this current pandemic is over, then you risk letting your competitors steal a march on you, warns Jeremy.
The same goes for borrowing money. “Interest rates are low for a reason. If you sit there saying you’re not borrowing any money, then you’ll get left behind by the business who are.”
But be sensible. “Don’t borrow ‘expensive’ money,” urges Jeremy. “Do your cost-benefit analysis, or explore invoice discounting, but if it turns out to be too expensive, don’t do it. It’s better to explore the options than to dismiss the option of borrowing altogether.”
Coming out the other side
“Our initial estimate for the UK is that we won’t return to some semblance of normality for a couple of years, so businesses will be feeling the effects of this at least until 2022.”
Whether those effects are good or bad will depend on how businesses handle things now. “This may be the strangest economic period we’ve gone through in living memory, but there are lessons we can learn from the past,” says Jeremy.
“The past twelve years have been a test of business resilience, and this pandemic is the latest and possibly the biggest many will ever experience.”
Learn more about how Equals can help your business with their money management. From international payments to business expenses, our team of experts are on-hand to help guide you through these uncertain times.