The Pandemic has taught every Business Leader in the World the need for Working Capital in a Crisis
The Need for Working Capital in a Crisis
Working capital is essential for any business to grow, especially small businesses, and if the pandemic has taught us anything it’s the need for cash flow in a crisis, regardless of company size or location. The Covid-19 pandemic tested everyone, families and businesses alike, placing companies and employees under financial pressure, not to mention bringing a global focus on the need for stability and support.
With millions of people unable to work and spending less on non-essential items - the economy has been hit hard. Times of crisis force finance managers to take drastic measures, and these short-term measures often have far-reaching and costly implications.
As economies emerge, conditions will most likely remain challenging for some time and businesses need to review and prioritise working capital to be in good shape for the journey.
Cash flow management in a crisis
The recent lockdown measures resulted in businesses resorting to varying methods to protect cash flow, such as:
Delayed payments
Extended payment terms
Tax deferrals
Reliance on government finance schemes
Debt
Reduced workforce
These actions help in the short-term yet in the long-term leave companies facing the reality of deferred payments, and hiring and training costs, on top of the cost of day-to-day operations, all at a time when revenue may not have bounced back to pre-crisis levels.
Research reveals the impact on small businesses
78% of businesses are reported to have lost revenue in 2020
95% of small businesses said that the pandemic affected their operations.
81% of firms reported a decrease in sales as a result of the pandemic
And 91% of employer businesses said they sought emergency assistance funding.
In short, businesses are suffering, and yet, the quick-fire approach to cash flow may be more damaging than one would hope.
During Hi’s recent Financial Director webinar, “Managing Finances During The Pandemic” CEO, David Brown discussed the shock of payroll in times of crisis, and how most businesses are not prepared for this kind of disruption. This lack of preparation leads to short-term “blunt instrument” measures, such as reducing the workforce. Decisions like this have huge implications because when a business does pick back up, there is the added cost of recruitment and training.
What Hi's been working on is bringing payroll into the modern world, allowing its clients the flexibility to deal with shock and disruption, and the power to finance payroll obligations. Hi supports those times where you just need the workforce financed to cover a dry month or so.
It’s time we turned payroll into a natural lever to help business
One that doesn’t require blunt instruments, that retains talent and looks after the workforce, but at the same time allows the employer some degree of flexibility in their working capital and finance.
Cash flow implications during times of crisis can’t be underestimated - it’s time to make the world financially stronger by providing access to finance for those that need it most.
Belen Villasnante speaking during Hi’s recent Financial Director webinar.