As in every corner of society, the COVID-19 crisis has companies dispensing with business as usual and attempting to better understand how the community is reacting. So, rather than issue a survey on the evolving role of the finance department, which would usually be the topic of the spring survey, the Brainyard team developed one asking about changing plans and expectations in the face of the worldwide pandemic.
Based on results from the first week, businesses are sober about the economic consequences, for themselves and even more so for their customers. Most see a path forward and have taken short-term actions to shore up their cash reserves and, to the extent they can, take care of their employees. It’s impressive resolve considering the majority of respondents are leaders at companies with less than $50 million in annual revenue — businesses that tend to be more affected by economic downturns.
COVID-19 has negatively affected 84% of respondent businesses, either slightly (39%) or significantly (45%). As a result, 47% say they are somewhat confident of having a successful year, with 27% feeling more confident than that and 26% feeling less confident.
That’s a reversal from what Brainyard found in December, when 48% of respondents said they expected a “very good” year, and 32% said they expected a “good year.” At this point, 15% are worried about bankruptcy or going out of business completely. Instead, they’re much more likely to worry about the effect of the pandemic on their customers’ confidence (58%), disruptions to their workforce (56%), customers canceling orders (50%) and their suppliers not being able to deliver (40%).
These concerns boil down to two things: cash flow and the ability to meet customer demand.
Show Us the Rescue Package
To fill the cash void, the vast majority expect to take advantage of Federal rescue loans and grants (74%) or other credit (state programs 27%, bank loans 38%, municipal programs 8.5%). Only 20% don’t expect to use any form of credit or grant; that roughly correlates to the 16% who say their businesses have either been unaffected or have benefitted from the crisis.
The other side of the cash flow coin is cutting expenses. Capital outlays will take the biggest hit, with 42% expecting a significant decrease in spending and 14% saying they’ll spend slightly less (-1 to -5%). Operations and marketing are the other two areas facing significant cuts.
Production and payroll land in the middle of the pack, with most predicting modest trims.
Technology spending is the least affected, with 22% predicting a significant decrease and 15% expecting a small cut, while 19% expect a small increase and 12% expect to spend significantly more on technology. From freeform responses, it appears that IT spending has come into focus due to work-from-home requirements and the benefits many businesses have gotten via their ecommerce capabilities.
Still, every single area is down at least somewhat in aggregate, which is in sharp contrast to the December findings, where respondents almost universally expected to increase spending, particularly on payroll, marketing, sales and technology.
The New Old Normal
Brainyard asked respondents how they see the pandemic playing out. Overall, business leaders expect a sharp downturn followed by a sharp recovery. Only 15% expect it to take more than a year for the economy to rebound to pre-coronavirus levels.
Those most pessimistic about the future are generally in sectors hit hardest by social distancing requirements, such as leisure, entertainment and hospitality. These also tend to be the respondents who expect it take longest to return to 2019 business levels.
Dozens of leaders shared their feelings on the prospects for their businesses. While some were dire indeed, most offered views similar to those from this CFO in the utilities sector: “2020 will be very challenging ... we’re structuring now for 2021” and this more eloquent VP at a small distributor: “We will stay relevant and adapt but need to shrink expenses and purchases in line with decreased sales. There are amazing opportunities for positive change in the way we do business, in our relationships with customers and finding new sectors to explore.”
Contribute your experiences to the Brainyard survey Business Leaders' Outlook: The New Normal.