The mid-market’s perceived resilience and agility might have helped it deal with the massive shock of the COVID-19 pandemic. Will this same resilience transfer to the next phase of the crisis as economies begin to reopen?
The COVID-19 pandemic, subsequent lockdown and resulting economic shock have tested business in entirely unprecedented ways, and their impact is likely to be felt for years to come. But, against this backdrop, IBR data [i] finds the global mid-market to be relatively upbeat.
Although more than 65% of mid-market businesses said COVID-19 would hit their 2020 revenues, the data suggests the impacts on the mid-market fall short of the worst predictions of the wider economy. By comparison – and in findings that are common across other sentiment surveys of all sizes of firm – CNBC’s Global Q2 CFO Council Survey [ii] reported that 88% of CFOs expect a 'negative' or 'very negative' impact to their businesses.
While the pandemic’s impact has been significant, less than 2% of IBR respondents said they expect to cease trading as a result of it. Globally, one in three businesses expect to continue trading based on their existing financial situation, while 38% said they can continue to trade using existing funds but would need to cut costs and/or restructure. Just under 20% said they would need to supplement cost-cutting and restructuring with access to new funding from lenders, investors or government grants.
The data suggests many mid-market businesses have met the crisis with the resilience previously identified as a characteristic of this sector. [iii] As we examine how the crisis has affected business, we explore the strategic decisions taken pre-crisis that have aided this resilience and consider what companies are doing to get ready for recovery.
Pre-empt the risks in a recovery
Global lockdowns are already relaxing in many jurisdictions, while restrictions are beginning, or are poised, to ease elsewhere, and leaders are looking towards a recovery phase. But the transition out of a crisis is often the most vulnerable period for an organisation. Ramping up purchasing orders and building inventories can quickly overstretch businesses and drain liquidity as they spend more to get back on to a ‘normal’ or growth footing.
Cash flow will remain a critical concern for many companies as they enter this new phase. More than 40% of businesses globally said they have started planning for financial resources to help them through recovery. The withdrawal of government support and tapering of programmes such as furlough will leave businesses more exposed, and they will also be factoring into their plans the payment of taxes and VAT that were deferred in some countries after the pandemic hit.
With the crisis far from over, nearly 50% of businesses globally are already considering workplace safety plans. When and how employees return to work will be crucial to preventing, mitigating or working through a second wave outbreak.
But there are encouraging signs that the resilience and agility that has been a hallmark of the mid-market through the pandemic are now being applied to this next phase. In preparation for recovery, many businesses are looking into how to better use scenario planning and grappling with people and leadership challenges.
Businesses are also thinking hard about how they focus their resources to ensure stable and profitable recovery through a turbulent economy. More than 40% said they have started identifying which customers and markets to prioritise as well as which products and services will best sustain them.
The new resilience
The global pandemic and the resulting lockdown have tested the mid-market like no other event in living memory. Many businesses have shown remarkable adaptability. Those organisations that were most prepared have fared more positively through the worst of the crisis. Similarly, as the global economy enters a new phase, vigilance and agility will be critical. Cash-flow management must remain a focus to avoid business failures. Meanwhile, operational flexibility, robust technology and careful planning for myriad potential scenarios ahead will be vital to not only protecting businesses but helping them grow.
Speak to a Grant Thornton adviser in your location to discuss how you can strengthen business resilience in these challenging times.