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Analysis of Covid impact on businesses and how to mitigate the adverse affects?

CA Saad Ali Kazi 
on 28 April 2020

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Hello,

Hope you and your loved ones are safe and sound during this major crisis faced by us.

As there is a complete lockdown and almost all of the economic activities are on hold, the economy is facing a major risk of recession and slow economic growth. According to a study, India's Debt-to-GDP Ratio is likely rise at 76% from 70%.

During these tough times with no revenue, it becomes imperative to have a holistic approach and redefine our business practices. It is time to introspect the impact of the lockdown and take measures to minimize the same.
As the day-to-day activities of businesses are on descent, it is a good opportunity for entrepreneurs to analyze their businesses. This will not only help in minimizing the impact in the aftermath of the COVID-19 crisis but also will help in the long run and change our business approach.

How can businesses mitigate the adverse affects of COVID-19

Below are the certain pointers to be considered:

1. Data Analysis

The most important attribute of data is that it should be accurate, quick to compile, and easy to structure to be useful for business analysis.

More often than not, the data available with the businesses is not structured or used/analysed in a way it should be. Businesses should realize the power of data and work towards compilation, structuring and analysis of the same.

2. Cash Flow Management

Businesses should prepare a projected cashflow statement or revise already prepared cash flow to analyse cash requirement of the business in short as well as long run.Focus should be on re-prioritizing outflows. This may include deferment of expenditure, offering rebates for early realization of receivables etc.

3. Control Costs / Reduce Costs

Businesses should perform critical analysis of their costs. Breakup of costs into direct, indirect, variable, fixed etc can play an instrumental role in identifying potential costs which can be controlled / reduced. Businesses should consider re-negotiation of contractual costs for the period of crisis, use of covenants in contracts such as force majeure, avoiding certain costs etc.

 

4. Focus on Inflow

As the saying goes, 'Revenue is Vanity, Profit is Samity but Cash is Reality', it is absolutely necessary to ensure the influx of cash to face the liquidity problems businesses might face in the aftermath of the crisis. Apart from saving cash by controlling or reducing costs, businesses should also focus on realization of cash and establishing alternate source of inflow. Ageing analysis, ratio analysis, breakup analysis, discussions with parties etc should help in deciding future course of action. Special attention should be paid towards high possibility of bad debts due to economic conditions to avoid last minute surprises.

 

5. Benefit from Government Relaxations / Schemes

Businesses should ensure best use of government's relaxations / schemes such as extension of due dates for return filing, moratorium on loans, tax benefits, compliances benefit etc. These can play a pivotal rolein tackling the liquidity problems as well as controlling costs.

6. Mitigating Crisis / Turning Crisis into Opportunity

As they say, 'When the going gets tough, tough gets going'. The businesses need to think and innovate. Mitigation of crisis will need proper planning, innovative thinking and leadership skills. Care should be taken that the workforce is sufficiently motivated. A mitigation plan enlisting roles and responsibilities should be formulated and implemented.

Hope the above points will help you in minimizing the impact of COVID-19 on your business.
Have a great day! Stay Safe!


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