( By Elton Mwangi)
The United States is in a halt. Schools, as well as businesses, are closing, the stocks are tumbling rapidly, and public anxiety is rising. All this is happening as a result of the worldwide spread of the COVID-19 virus. But how is coronavirus affecting the US economy in 2020?
Reduced Consumer Spending
Currently, more than 4,000 United States citizens have been infected with the coronavirus. To this effect, economic activity is slowing down. Now, economists are predicting that the United States will not experience any economic growth until the second quarter of the year.
The rapid spread of coronavirus is causing businesses and consumers to cut down on spending. Restaurant take-outs, travel, tourism, and entertainment are some of the areas that are facing the most significant loss in revenue creation.
This provides a problem for the United States because its economy is substantially built on consumer spending.
Disruption in Supply Chains
The continued international lockdown on travel and the shutdown on specific industries in response to COVID-19 is already causing disruptions into supply chains in 2020. Suppliers can’t deliver materials, and it’s becoming difficult for companies to deliver to their customers.
As a result, organizations are forced to support their suppliers financially. Also, customer and supplier relationships are in jeopardy, and this will impact businesses in the long-run.
A Looming Recession
The Chief Nationwide economist predicts that by the second quarter, the GDP will shrink by 5 percent. This is a significant drop that is expected to pull the nation into an economic recession. However, the recession should be short-lived.
With the economic recovery expected to occur towards the beginning of October, what can companies do to survive the coronavirus ordeal? It is still too early to predict the total impact that the COVID-19 disease will have on companies.
Nevertheless, there are measures that CEOs and CFOs can take to ensure their workers can survive the pandemic.
Surviving the Pandemic
The coronavirus can affect the revenue of a company through:
Slowed down production
Delayed goods and service delivery to the market
Reduced demand for products and services significantly
Delays in customer outstanding invoice payments
So what can the company do?
Make a Review of Credit and Debit Facilities
First, look to the future. It is possible for a company that has a good revenue reserve to survive for up to two quarters. But, if the revenue stream is slowed or disrupted, it can put a strain on the firm.
Therefore, before dipping into liquidity reserves, the best action to take is to review the existing debit and credit facilities of the business. This will ensure that there is available cash for operational sustenance in the workplace.
Examine carefully any legal and monetary penalties and financial covenants that might result from missed or late payments. Make sure that you include an assessment of the ability the company will have to access capital markets or credit facilities.
These issues are bound to affect the revenue stream of a firm.
Track Lending Requirements
Second, ensure that your company keeps in contact with rating agencies and lenders. This will help you keep track of the ability your company has to meet the evolving lending requirements.
Think about it; the more your production slows down, the lower your lending abilities become. Moreover, if you delay making payments, you reduce your credit rating. At the same time, it increases your need for borrowing.
This can affect the bottom-line of your company worse than the effects of coronavirus in the future.
Review Contingency Measures
Review your contingency measures over the short, mid, and long term. Make any necessary adjustments continuously.
For instance, you can reduce costs in parts of the company, delay any plans to increase dividends or repurchase shares, and consider the need to put employees on a temporary leave of absence.
Evaluate the Potential Impact of Your Supply Chain Disruptions
Evaluate the impact a delay or a disruption on your supply chain might have on your customer relationships. Once you have an assessment, inform your business partners and key customers about any expected delays.
If you need to support your supplier, figure out how you can utilize the available capital from different parts of your company. Also, consider the possibility of breach of contract between you and your customer or supplier.
Breach of contracts bring liabilities to the company that go beyond lost revenue. Therefore, look into your insurance covers to determine what will be covered from the outcome of this pandemic. Do not forget to disclose your findings to your investors.
How is coronavirus affecting the US economy in 2020? This question has been undoubtedly answered in this article. All companies should start to consider how their revenue and industries will be affected. And instead of operating from a place of panic, there are measures that businesses can take to ensure they don’t lose money.
Start by making a review of all your credit and debit facilities. This will help you determine how long your company can survive on its current revenue stream. Then, evaluate your supply chain, the possibility of any delays, and the effects it will have on your supplier and customer relationships. You need to prepare for any future fallbacks and loss of revenue streams.