Introduction
COVID-19 pandemic has strongly affected firms’ real investment (long-term capital) as attitudes, abilities, and behaviors of customers, employers, and employees change accordingly. The outbreak of Coronavirus disease is gradually influencing what and how customers purchase while quickening structural transformations in the consumer goods and services sectors. Even after the immediate effects of the pandemic have subsided, businesses will require to reevaluate changes in the way they design, advertise, promote, and present different items to attract consumers (Lucchese & Pianta, 2020). Over and above the decreased demand and high costs attributable to the implemented safety measures, other worrying concerns that firms experience encompass disrupted supply of inputs, reduced productivity and profitability, liquidity and credit restraints, and poor financial management. Risks linked to the COVID-19 pandemic have negatively affected performance among companies and micro, small, and medium enterprises (MSMEs). The economic impact of the COVID-19 pandemic and looming crises signify the need for investors and companies to have high-quality financial information to help them overcome arising challenges.
The Pandemic’s Characteristics and How it is Anticipated to Affect the Whole Economy
The Coronavirus disease outbreak has led to more than 13 million confirmed cases, in addition to nearly 600,000 deaths across the globe. Apart from the people who are already infected or dead, the COVID-19 pandemic has affected billions of people internationally. The outbreak of Coronavirus disease has generated negative effects on the international economy, businesses, companies, and small and medium enterprises. Accordingly, economists envisage the deceleration of the impetus of income-generating endeavors that commenced in March 2020 onwards devoid of an exact ending date. The first country to feel the effects of the COVID-19 outbreak is China, and attributable to the fast-rising level of infections, the World Health Organization (WHO) declared the Coronavirus disease a pandemic at around mid-March, 2020. Currently, the pandemic has spread quickly, and the rate of infection is anticipated to keep on rising worldwide (Evans, 2020). Movement restrictions, lockdowns, social distancing, and isolation are some of the efforts by governments to safeguard extraordinary health and economic occurrences. Though strict government policies and measures to control the pandemic are crucial, businesses experience a negative impact on their performance in either short- or long-term. The main obstacles are cash flow hitches, termination of operations, laying off employees hence reducing productivity, retrenchment, and weakened financial ability for future expansion. Variation of business practices and operations, in addition to the pressure to seek new opportunities and resources, have been identified as vital challenges for nearly all firms.
Businesses around the world are experiencing the brunt of COVID-19 pandemic as many countries enforce either partial or total lockdown. This has hurt businesses, particularly regarding their growth, productivity, and profitability (Sheth, 2020). In the US, economic estimates affirm that the country will face sluggish progress in manufacturing, agriculture, and services sectors, in addition to extensive disruption in supply chains, an increase in joblessness, and reduced government revenue. Supply chain disruptions, attributable to the effects of Coronavirus disease outbreak, result in the irregular provision or access to raw materials and intermediate goods, decreased revenue, and insufficiency of liquidity to uphold business operations. There is a need for the government and business operators to establish recommendable aspects for public sector backing to sustain financial operations and alleviate the effects of the pandemic (Donthu & Gustafsson, 2020). For example, SME-particular support endeavors encompassing monetary packages, tax relief, slackening in payments of utility bills, financial backing for the payment of salaries, and easing of stipulations for the repayment of loans will highly assist in the continuation of business operations. Firms in the US have experienced a tremendous impact on their performance attributable to the negative effects of COVID-19. The effects of COVID-19 pandemic on the whole economy have been highly disruptive.
Effects of COVID-19 on General Financial Management of Companies (CLO1)
The impact of COVID-19 pandemic on manufacturing, business, distribution, retailing, and present situation of highly broken supply chains has negatively affected the general financial management of companies. As companies endeavor to proceed with operations during the pandemic, they are appreciating the value of enhanced collaboration, the benefit of a sustainable supply chain, worth of technology deployment, dynamic reaction approach, synchronized tactical practices, and diversification for success in rare events. Supply chains in the next generation require a considerable variation in outlook. To overcome some challenges of pandemics that influence business performance negatively, Sharma et al. (2020) recommend that firms should embark on a forward-seeking practice that upholds numerous facets of the supply chain encompassing processes, technology, and people. Some of the policies that companies can undertake to enhance their financial activities include the integration of technology such as e-commerce and collaboration with several stakeholders while upholding strategic operations in their supply chain management.
COVID-19 pandemic has elicited the fear of looming recession and economic crisis. Self-isolation, movement restrictions, and social distancing have resulted in the loss of wages and income as companies across all economic segments layoff a significant portion of their workforce (Maria et al., 2020). Moreover, learning institutions remain closed and the requirement of manufactured products, services, and commodities has decreased. The fear of financial collapse necessitates resilient and strong leadership in the medical field, governments, companies, and society at large. Instant relief policies ought to be implemented and attuned for companies that are likely to fall through the cracks. There is a need for financial institutions and governments to continually reevaluate the existing situation and make sure that, as much as possible, adequate support is provided to companies in all sectors in an attempt to facilitate their financial management.
Effects on Financial Risk-Taking of Companies (CLO5)
The effects of social distancing, inter-state lockdown, dusk to dawn curfew, and intra county movement restrictions have influenced consumer spending hence resulting in layoffs and indefinite unpaid leave as businesses seek to reduce costs. This has hurt financial risk-taking of companies hence the need for businesspersons and the government to understand such effects of COVID-19 on organizations to enable all stakeholders to embark on a meaningful role in mitigating them (Evans, 2020). For example, to help affected companies, the government should adopt a monetary stimulus plan to assist them. This might encompass a temporary diminution of business-related taxes, aligned customs decrease, zero-rating of crucial supplies, scraping or lessening of excise duty to avoid layoffs, and supporting companies to sustain meaningful operations during the pandemic.
Companies might be necessitated to consider COVID-19-associated risks into their financial accounts. Some of the fiscal statements that could be negatively affected by the outbreak of the Coronavirus disease encompass financial assets, receivables, and inventory. To safeguard financial assets, corporations should deliberate on the possibility of impairment, in addition to the necessity for the adjustment of cash flow forecasts and other suppositions employed in the valuation of non-quoted monetary tools. Financial assets indicated at reasonable worth on the balance sheet might lead to realized and unidentified losses. In the case of receivables, consumers adversely impacted by the pandemic might be incapable of paying outstanding bills. Such an occurrence could lead to increased liquidity and credit risks, escalating bad debts, losses, and write-offs (Evans, 2020). Additionally, cash flows attributable to business activities might also be affected. Concerning inventory, the effects of the COVID-19 pandemic have the possibility of disrupting productivity, as well as supply chains. Companies that have decreased production ability may fail to assign overhead expenses to inventory as in normal cases. Furthermore, inventory that cannot be turned over attributable to movement restrictions might have to be appraised for impairment. Variations in prices and a decrease in the rate of demand may also require careful deliberation to address arising challenges successfully.
Decreased movement of goods and people signifies that companies will increasingly face decreased investments, performance, and supplies. Moreover, the dilapidated economic environment attributable to the effects of COVID-19 is progressively resulting in business failures, inability to repay debts, redundancies, insolvency issues, losses or decreased profits, and inability to access credit because of the strain on banks and other financial institutions emanating from reduced cash flows and loan defaults. In future worst-case situations, slowdown or cessation of government services will make it hard for businesses to get appropriate permits and approvals or their compliance with other statutory requirements (Fitriasari, 2020). The strain on business operations and performance may make companies find it difficult to adhere to obligations such as payment of taxes, rent, and employees’ salaries.
Although extended consequences of the COVID-19 pandemic on the performance of businesses are not well known, it appears unreasonable to assume that its effects on the general financial management of companies will be short-lived. In line with the caution issued by health professionals, the effects of the Coronavirus disease are not only far from ending, but the underlying risks are nearly certain. Consequently, the focus of businesspersons should be forward-thinking to assist in coping with an extensive impact on business endeavors (Carnevale & Hatak, 2020). There is a need for future research to comprehend the effects of the pandemic on the capacity of workers to navigate the loss of jobs and possible strategies of upholding competitiveness and productivity.
Effects of COVID-19 on Specific Corporate Activity (CLO2, CLO3)
The socio-economic effects of the COVID-19 pandemic on corporate activities, particularly sales, occur mainly through two different channels. The first channel encompasses the direct and indirect impact on consumers’ health. This may be attributable to a current or would-be customer either falling ill or dying, which decreases a company’s sales consequently. The possibility of growing sales in a company is also negatively affected by the decreased consumer purchasing power emanating from either loss of earnings, usage of a huge amount of money in the care of sick family members, or other related costs (Evans, 2020). The second channel involves aversion behavioral practices caused by the overriding fear of contracting the virus. This, in turn, results in the fear of associating with other people thus decreasing labor force contribution, closure of places of work, disruptions in the transportation sector, and motivation of the government to close borders and limit movement of people in and out of the afflicted areas.
Some private decision-makers are compelled to make resolutions that disrupt trade, commerce, and movements by cancelation or reduction of transportation and cargo services (Lucchese & Pianta, 2020). Companies and small and medium-sized enterprises around the world are taking proactive actions to avoid infection, which in turn negatively affects business sales, growth, productivity, and profitability. For example, the closure of businesses, whether in response to government bans or own measures, leads to tremendous impacts on companies and small and medium-sized enterprises and loss of wages for employees, particularly in the informal sector where workers are not entitled to paid leave.
Major shifts in perspectives and consumer behavior unavoidably form from collectively experienced happenings. This demonstrates the negative effects of COVID-19 pandemic on business sales (Eggers, 2020). The general populace, customers of different companies, reacted considerably within roughly one month of the awareness of the presence of the virus in the US. As the attitude of preparedness became established, the items that became a priority included face masks, medical supplies, antibacterial wipes, sanitizers, and handheld, non-contact, infrared thermometers. With most customers feeling caught by surprise and fearing a possible lockdown, panic buying resulted in the purchases of food supplies in huge quantities such as canned vegetables, rice, beans, flour, bottled water, and powdered milk. However, over time, the effects of COVID-19 have seen many employees lose their jobs and the closure of many businesses such as pubs and hotels to mention a few. Loss of job and closure of businesses have hurt the purchasing power of consumers hence translating to the purchase of only basic commodities by most consumers, and this has had a tremendous impact on company operations and profitability.
As the country progresses into a new normal, different patterns of consumer behavior are emerging such as the preference of online purchases of food deliveries and other items, increased personal isolation, and a move to minimal sharing of foodstuff, clothing, and other items through which Coronavirus may be transmitted. Different factors associated with COVID-19 such as increased joblessness, containment in some areas, and dusk to dawn curfew have resulted in a gradual deterioration of businesses, both major companies, and small and medium-sized enterprises across the globe (Evans, 2020). Going forward, the long-term effect of the pandemic is likely to be more acute and future economic development is probable of being highly dynamic.
Conclusion
In the wake of the COVID-19 pandemic, firms’ financial management and monetary activities have been hard hit with some businesspersons halting their operations or laying off some employees thus translating to a loss of productivity. As the Coronavirus disease continues to affect and take the lives of people, the government has enacted strategies and restrictions aimed at alleviating the spread of the disease. Nevertheless, although beneficial in disease mitigation, most of the government policies coupled with the effects of the pandemic have unspeakably hurt business operations. Despite most businesspersons choosing to downsize their businesses, there has been a rising trend in the closure of enterprises attributable to poor performance and decreased profitability. Consumer behavior shaped by the impact of COVID-19 has had a detrimental influence on the sales, growth, and productivity of businesses. Financial institutions and governments should continually re-assess the existing conditions and make sure that sufficient support is offered to companies in all sectors to ease their financial management practices and overcome challenges brought by the effects of the COVID-19 pandemic.
References
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