Each continent has withstood its time as part of the epicentre of the coronavirus pandemic. As it infiltrated and devastated country by country, the effects of the COVID-19 outbreak have been vast. Not least on the financial health of individual businesses, countries GDPs and the world economy.
Coronavirus could cost the global economy $2.7 trillion: (Bloomberg)
Just as there have been varying levels of devastation across countries, the same is true across sectors. While every business in all industries and at every size, shape, and form have had to monitor the impact of the outbreak on their business operations- some have had to go beyond keeping an eye on it.
Many businesses didn’t make it through the first few weeks of the epidemic in the UK. So what makes for a robust, pandemic-resilient business? And what lessons can we learn from those sectors that were able to capitalise on the situation?
The Coronavirus Tax Review
Someone will have to pick up the undoubtedly heavy COVID-19 bill at the end of this pandemic. The UK government will have to accept it, but who will ultimately pay? The Coronavirus tax review suggests that capital investor gains could be used to help settle the bill- according to Government plans to review the Capital Gains Tax (CGT). It is essentially the tax on the profit made from selling an asset that has increased in value.
The UK deficit is likely to exceed £350 billion as a result of the coronavirus. With government deficit, naturally comes higher taxes, austerity, and less consumer spending. All of which, account for an adverse environment for any growing business.
How have different sectors managed the immediate wrath of the virus?
Working from home
For many companies, April and May 2020 will be remembered as one of the most creative and productive times in their history. Across the board, around 2 years of development took place in the space of two months. The sense of urgency compelled many companies to abandon long-winded processes and to get things done by delegating control to employees from the comfort of their own homes.
In short, home-working has been massively successful and is likely here to stay. The long term implications of such an arrangement include financial savings on office rent, commuter expenses and workspace maintenance.
For companies like SaaS, online stores, and remote-working tools, in particular, the working from home period has created the ideal breeding ground for revenue, investment and growth. Companies like Zoom, who’s services are imperative to the success of other businesses have capitalized on the new remote work market.
Despite some obvious benefits of operating from home, many businesses will proceed to welcome employees back into the workplace. High street stores, trading floors and face-to-face services will resume. The operating costs of running a business during the much-anticipated recession could see the demise of more stores and SMEs. As taxes increase, consumer expenditure lags and investor confidence slumps, it may well be those hard-stores which lack work from home capacity, to be hit hardest.
In the education sector, students across the country have been sent home until further notice. This unprecedented move has caused major financial implication on education funds. Universities have traditionally attracted a large portion of high-paying students from abroad. These international students have been deterred to return, putting some century-year-old institutions at risk of collapsing.
The largest university in the UK, University College London (UCL) have announced that they do no expect students to return for the rest of the academic year. Not only will this impact the 300,000 or so students, but closing universities to face-to-face learning has meant that fewer students are willing to pay up to £30,000 a year for online courses.
Furlough, Layoffs and the unemployment market
For many, the costs incurred as a result of the coronavirus pandemic, have meant being sent home, either paid or not but certainly with no work to do. This has had multiple effects on incomes, government expenditure, business’s profits and daily living standards.
The number of people claiming unemployment benefits surges to 2.6 million between March and June (BBC). But what does this mean for businesses? Aside from the fact that staff have been cut, which directly translate into much-needed cost cuts for some businesses; it’s had a direct impact on revenue too.
Ultimately, high unemployment is a key determinant of a poorly functioning economy. As we enter into a recession, the unemployment rate is predicted to rise- despite the government’s efforts to limit this. With high unemployment comes minimal spending power across the economy.
There’s a silver economical lining. Consumer expenditure is an important feature of aggregate demand. As people spend less, savings increase, and interest rates come down to attract investment and borrowing.
Perhaps it’s simpler to imagine the businesses who will be hit hard. Think high street stores and insurance companies, along with other non-essential, luxury goods and services. But which sectors will be resilient enough to break through the unemployment surge and spending slump?
Growth forecast for retail sales pre and post-coronavirus in the UK 2020 by sector (billion GBP): Statista
Essential shops and services are likely to do well. Budget supermarkets always tend to experience an increase in revenue as a recession hits. Considering we’re entering into what’s been described as the worst economic recession in 100 years, it’s reasonable to put forward the following list of businesses likely to come through stronger than ever.
- Accountants- people and businesses will still need to pay taxes. It’s more important to keep finances in check during economic downturns.
- Economists and financial advisors– people with substantial assets will want to ensure they’re taken care of- particularly during a recession.
- Healthcare providers– a service required at all levels of economic prosperity.
- Automotive maintenance and repair services– people are less likely to buy a new car and more inclined to repair old ones.
- Rental and estate agents- selling a house in a recession is difficult. Home staging professionals and estate agents can help make the process easier with their marketing capabilities.
- Grocery stores– an essential part of living, regardless of the economy. As price inflation ensues, people will fall back on budget grocery stores.
Where and how will investors be looking to place their cash
Despite the lifting of the lockdown measures, many of us remain spending most hours indoors. This lends to the fact that some companies that were nearing bankruptcy- now find themselves on the brink. Several retailers have already gone under and a number of oil and gas producers have been placed in between the pandemic and the pricing war, and are struggling to stay afloat.
Investors should know what to invest in during a recession and how to spot precisely which companies are potentially on their way to solvency. How can we determine a robust and financially healthy business from the frauds masking up their financial difficulties?
Those who unknowingly entered the pandemic with high debt, and were already struggling against industry headwinds, with no business model that allows them to pivot while customers are in quarantine are the culprits.
In that case, where will investors be looking? The government will likely try to stimulate investment by offering lower interest rates on borrowing and generating SME startup schemes. Demand for private assets will remain strong. Their performance and low liquidity relative to listed companies make them attractive. Private market valuations will also progressively adjust to the new environment, providing good investment opportunities.
The UK governments recent proposal to give households spendable vouchers worth £500 is known as ‘helicopter money’. Whilst this is incentive is a great way to spur spending and encourage investment- it also risks inflation once the crisis is over.
Mary is a freelance tech, gadgets and lifestyle writer based in London. Her work has been featured in HubPages, Tech Crates, Virily and Recently Heard. He runs a blog, An Eye Behind, that focuses on the secret life of London.
