COVID-19 - its impact on finance teams
The coronavirus (COVID-19) pandemic has had an enormous impact on the world. At the end of January 2020, it became apparent that the spread of the disease would be difficult to control, but many companies did not fully appreciate the gravity of the situation.
One after the other, countries have implemented measures such as self-isolation and social distancing, and serious questions have been asked about the probable financial and economic consequences. In the face of this, how can individual finance teams make useful predictions and manage their expenses effectively to maximise their organisations’ chances of survival?
A climate of uncertainty
Aside from the human cost of the pandemic and the social changes necessary to minimise that, the biggest immediate impact has taken the form of economic uncertainty. Many have been surprised by how well the markets have rallied in the circumstances, but with different countries and industries experiencing the strain in varying ways, it’s difficult to know how the situation will develop over the following months and years.
Experts have predicted a major recession and the fall of oil prices seems to confirm that we are heading in that direction. Nevertheless, history tells us that some sectors usually manage to buck this trend in the aftermath of pandemics, profiting as consumer spending patterns change. To survive, businesses need to focus on maintaining a steady income and to rigorously scrutinise their expenses.
Caution is needed, as both inflation and deflation remain potential risks and there is uncertainty about how interest rates may have to change in order to keep the British economy stable. In addition to this, the uneven impact of the disease around the world means there is likely to be global instability affecting exchange rates and supply chains for months to come.
Staying aware of and flexible about change
In this situation, businesses need to be flexible and avoid overextending themselves, and to be alert to opportunity. With competitors failing, some businesses will have unprecedented opportunities to grow. The challenge facing senior finance professionals is to get into a position to take advantage of this without compromising their businesses’ capacity to respond to risk too much.
Where are these risks? With the UK government changing aspects of policy on business and pandemic management almost daily, and with devolved governments increasingly doing their own thing, there are a lot of unknowns.
There have also already been some significant changes. HMRC has provided a three-month extension on the deadline for filing accounts, and IR35 reforms have been postponed until April next year, as have requirements for implementing digital links as part of Making Tax Digital (MTD).
In addition to the above, a range of tax breaks and related initiatives have been announced. It seems likely that more will follow. What will be available to your business will depend on its sector and which of the constituent nations of the UK it’s based in.
Keeping a close eye on the customer
Customer behaviour is also changing as a result of the pandemic and seems likely to do so in the long term. Observation of past pandemics suggests that consumers tend to be more cautious about spending in the aftermath, trying to build up some savings in case they find themselves in similar difficulty again.
In this instance, there are also likely to be changes to how they spend, with more people now becoming comfortable with online payment systems and getting into the habit of buying types of goods online that they would previously only have bought in person.
The message that people should only be shopping for what they consider essential is likely to change the way that a lot of people think about their spending priorities over the long term. Bearing this in mind will make it easier for you to predict market movements and predict your organisation’s future sales.
Conclusion
While the coronavirus outbreak has meant big changes for everyone, it is important to keep a level head during the chaos. Maintaining health and safety guidelines has been the highest priority, and because of that, almost every aspect of business has been affected.
The question remains, however, as to what the long-term effects of these changes will be. One thing is certain: there will be no going back to the way we were before, and it will only be businesses willing and able to adapt that will prosper going forward.
