As businesses ask workers to stay home, more border close and travel restriction mount, and stocks fall, a global health crisis becomes a global economic crisis. Faced with a growing economic threat for the coronavirus spread, many otherwise profitable and viable businesses temporarily face financial distress. In the effort to stem the spread of the virus and contain the outbreak, life is slowly grinding to a halt and with it much of the economy.
The COVID-19 crisis has now reached a new critical phase and implementing smart strategies now can help your business survive a recession:
- Increase awareness of how financial crisis occurs and how you are exposed
- Cut back on unnecessary expenses
- Determine what is left for debts
- Work through crisis scenario models
The Impact of the Coronavirus on U.S. Food/Beverage and Travel/Tourism and a Glimpse of the Post-Pandemic Business Landscape
While all industries have been affected by the COVID-19 pandemic, some are grappling with an unprecedented level of disruption. These effects can be particularly severe in some sectors including:
- Passenger airlines - as the virus made its way to the U.S. being responsible for a great number of deaths nationwide, the State Department has advised Americans to avoid all international travel. United Airlines will cut flight capacity in half in April and May and slashing corporate officer salaries in half;
- Food and beverage - In compliance with public-safety guidelines on social distancing, bars, and restaurants in seven states have been ordered to close with the exception of take-out services. The National Restaurant Association said recently it is seeking more than $350 billion in block grants, loans, and insurance;
- Travel and tourism - As millions of Americans are on lockdown in their homes, travel and tourism have been massively affected. The U.S. Travel industry could lose $24 billion as the rapidly spreading coronavirus cripples tourism from outside the country, according to data produced by Tourism Economics and first reported by CNBC.
These industries have been significantly affected by current events, but their loss of business will reverberate through the business community. For example, a hotel's suppliers will all likely feel the effects of occupancy rates tumbling, as well as its employees who are losing their jobs.
Postponing or delaying bill payments because you don't have enough money, can be the start of a slippery slope, as then debts will begin to pile up. Businesses suffering from insolvency - a company is insolvent if it is unable to pay its bills and with debts that exceed the combined value of all its assets - display certain characteristics, such as:
- Poor cash flow and ongoing losses
- The basic operating costs of the business cannot be covered
- Unable to pay the creditors on set terms
If your business is struggling with large amounts of debt, can't pay business rates or taxes, or has cash-flow issues, using one of the following strategies, you could recover the business and continue trading:
- explore your funding/financing options
- minimize further borrowing
- negotiate with creditors
- deal with cash-flow challenges
- check your options for restructuring, refinancing or getting more equity
With the virus spreading in the U.S. over recent weeks, how companies are managing the risk to their employees and supplier relationship has come into sharper focus. Whether businesses in these industries can avoid bankruptcy may largely depend on how accommodating their landlords, lenders, suppliers and other creditors will be with them. At this time, perhaps the fastest, cheapest, and easiest path is for any such businesses to approach their creditors first, directly, and ask for help if needed. There is a risk that any such creditors could respond by taking adverse action that could further exacerbate the current problems by, for example, commencing legal action that otherwise wouldn't have been taken, so each situation needs to be independently evaluated.