There’s almost no part of our lives that the COVID-19 pandemic has left untouched — and that includes our finances. Economic growth across the Caribbean is forecast to contract by 6.2 per cent in 2020. The International Monetary Fund has revised downward its growth forecasts for Caribbean economies, and as a result tourism-dependent markets such as Jamaica can expect double-digit contractions. Commodity exporters, including Suriname and Trinidad and Tobago, will also be impacted by price shocks and pressure from the global downturn, which has resulted in lower energy consumption. An overall reduction in financial flows from abroad, including investments, transfers, and remittances, could lead to a synchronised contraction across the region.
Despite this grim outlook, Caribbean businesses can take steps to prevent this short-term crisis from becoming a long-term fiscal disaster. For tips on how to reduce the impact of the COVID-19 pandemic on businesses, I spoke to three regional financial gurus.
In 2019, JMMB, a regional banking institution with a presence in Jamaica, Trinidad and Tobago, and the Dominican Republic, established a SME Resource Centre to provide support to clients throughout the business lifecycle. SMEs — small and medium-size businesses — will be hardest hit by the crisis, according to the International Trade Centre’s recent COVID-19 Business Impact Survey. More than fifty-five per cent of SMEs will be strongly affected, with one-fifth indicating they were at risk of shutting down permanently within the first three months.
Given these findings, JMMB’s SME Resource Centre’s services have become even more relevant, says Shani Duncan-Falconer, senior corporate manager. “It is important for SMEs to approach the pandemic using a two-phase strategy: they must first stabilise and return business operations to normalcy, or pivot and then plan for the future.”
In the first phase, JMMB recommends that SMEs implement proper money management strategies to maximise cash flow, savings, and investments. “It is important to ensure that every asset owned by the company is contributing to the bottom line. Businesses should also itemise all spend, account for all sources of income, and examine receivables in order to encourage repayment,” says Duncan-Falconer. “For example, they can consider offering a discount if creditors pay a certain percentage within a specific period.”
Firms also need to calculate their projected cash flow in as much detail as possible, and review this monthly. Where cash flow projections indicate a surplus, companies can allocate a percentage towards creating an emergency fund to cover six months’ worth of expenses. This should be done using a short-term instrument which is easily accessible.
In planning for the future, the defining factor for new spend should be: how does this impact the company’s bottom line? For example, a firm may choose to generate additional cash flow by pivoting operations which initially require capital injection. If the projected cash flow indicates a positive impact, it is considered a good investment.
JMMB has responded to the crisis by offering innovative new services. “Clients now have the opportunity to access a receivables loan which can be used to provide the business with cash flow,” says Duncan-Falconer. “Our structured debt option of loan consolidation results in clients having a single loan, a lower interest rate, and a lower monthly payment. We also created pre-approved loan options and temporary overdraft and line of credit facilities, with the possibility of deferring the principal and/or interest payments. The bank has adopted a partnership approach to the pandemic, working alongside clients facing challenging financial circumstances to identify win-win solutions.”
Guardian Life of the Caribbean, an insurance and financial institution, operates in over four major territories in the English and Dutch Caribbean. With global insurance demand expected to slow as a fallout from the COVID-19 outbreak, Guardian Life president Anand Pascal is well placed to share his experience mitigating the effects of this crisis.
“The first step is to assess the risk that COVID-19 poses to your business,” he says. “There may be myriad risks. If your sales are generally made via face-to-face meetings or require gatherings, then you need to reassess your business model. Can you transition to a digital medium to conduct the same transactions? What are the risks to staff? Are there risks to your long-term reputation and model if you mishandle your response to the COVID-19 scenario? All of this needs to be considered even before you tackle financial and investment issues.”
Pascal recommends maintaining sufficient capital or cash reserves to meet core operating expenses. Non-core or discretionary expenses should be reduced as much as possible, as a result of decreased income and the uncertainty as to whether business will return to previous levels.
He further advises that this may be a good period to invest. “Are your competitors having challenges? Maybe this presents an opportunity for an acquisition. Consider investing in new technology that makes your business model more robust in the future. Businesses can also consider new product lines and distribution channels. There are many opportunities that will arise from the COVID-19 scenario. To take advantage of these requires remaining calm, assessing the moving parts around you, and being decisive. Speed will win in this scenario.”
BDO, a global organisation offering audit and assurance, business and outsourcing, tax and advisory services across twenty-three Caribbean markets, has developed a “Rethink framework” anchored on the “React, Resilience, and Realise”stages of response. This framework provides support to clients throughout the COVID-19 journey, identifying key stages, issues and opportunities to consider, as businesses work towards succeeding in the new reality.
“At BDO, we see COVID-19 both as a danger and an opportunity,” explains Frank Soe-Agnie, partner advisory at BDO Suriname. “Businesses need to ensure they do not become paralysed by the pandemic, and seize the opportunities it presents, by accelerating operational improvements and transforming the way they work and how they do business.”
Soe-Agnie advises BDO’s Surinamese clients on how to mitigate the effects of the pandemic. “The first response is reactionary: businesses go into crisis management and survival mode. In this phase, you adopt tight financial management controls. In order to do so, however, organisations must have access to accurate up-to-date financial information to support the decision-making process.” Soe-Agnie recommends businesses compile the following baseline information: weekly and daily cash in and out flows, cash flow projections, and financial forecasts, along with a rolling quarterly budget. Ensure that you are aware of financial arrangements and contracts, including short- and long-term obligations, and tighten revenue generation cycles to make them more efficient.
“Take advantage of quick wins,” Soe-Agnie says. “Know your fixed and variable costs, shift to variable where possible. Eliminate other unnecessary costs, but keep items key to the sales and customer retention processes. Explore the possibility of facility extensions at the bank and negotiate longer payment terms. Ensure your purchase management system is well-structured and centralised to avoid hidden expenses, and manage your supply chain, especially if output has slowed. In the long term, consider moving items out of the capital expenditure basket by exploring lease options.”
Develop financial scenarios — what will you do if things get worse? If the business closes down? Make sure your pricing model is flexible — what can you do to lower prices and become more competitive? “Finally, prioritise ongoing investments, as these are your growth factors for the years ahead, and intensify communications with stakeholders — namely banks, business partners, key clients, and suppliers,” Soe-Agnie adds. “Ensure you share the impact and rationale of cost reduction and control measures with employees. You must get your human capital and talent on board with future plans and business models.”
Tips on how to manage investments and improve financial strength during the COVID-19 crisis
Courtesy Guardian Life of the Caribbean
• Reduce debt:
— stop creating new forms of debt
— create a savings fund
— request lower interest rates on existing loan payments
— consolidate all existing debt into one loan payment
• Stash cash: if you have liquid assets or assets that can be easily sold or exchanged for cash in a short timeframe, consider doing this
• Explore new markets to invest in: be on the lookout for new and emerging markets that arise, and invest in them by purchasing shares or stock
• Identify levels of risk: as risk levels increase, adjust lifestyle, spending, and investments
• Increase savings: a savings fund can be used to diversify current investments which will allow you to capitalise on new opportunities