COVID-19 has most businesses scrambling to figure out how they will manage through this pandemic, and curious about how they will come out on the other side. In this post, I’ll explain the current state of businesses, and what’s to come.
An analysis of current and forecast business events:
The current economic forecast is that 47 million Americans are at risk of losing their job. More than 16 million have already filed for unemployment. The estimate is that this can double in the next few weeks and the unemployment rate could remain as high as 12% well into 2021.
Unfortunately, many of these jobs are permanently lost.
The major retail stores are generally not paying rent or only partial rent in April. There is going to be stress on shopping centers and landlords over the next one or two quarters.
I’m expecting a lot of retail and office space to be vacant within the next 6 months. As tenants stop paying rent, landlords stop paying mortgage debt service, banks experience losses, and liquidity dries up; a cascading effect is created.
This may be worse than the mortgage crisis of 2008.
Companies that were highly leveraged in this downturn may be in serious trouble. There is likely to be many business failures in the next six months. Unfortunately, some businesses that closed will not reopen.
This is why it is very important to re-evaluate business credit of your customers.
The definition of a recession is a downturn in one quarter. The definition of a depression is a downturn in two consecutive quarters. The economic forecast is that a downturn of as much as 50% could occur in this quarter and as much as 30% in the third quarter.
One thing for certain is that the business climate we knew before will not be seen again. This is expected to be a U shaped downturn and recovery, at best.
Some forecast a return to previous levels by 2022 while others forecast a return by 2031.
Expect only gradual improvements over the next six quarters.
- Will the virus be contained?
- Will there be a continuation of social distancing?
- Will an outbreak come back in the fall/winter months?
- Will a vaccine be found?
The recovery will depend on the medical situation going forward.
With change comes opportunities. The skill level of available personnel will improve.
As it’s said, location, location, location; maybe more desirable space will become available.
New marketing methods and opportunities to gain clients will present itself as other companies stop serving their customers.
Possibly a competitor will become available for acquisition.
I see strong currents of an unknown duration. We are living and witnessing history.
Plan for the worst and hope for the best. I highly suggest you employ some sort of COVID-19 induced financial planning for your business.
Watch for opportunities to improve your location, select more highly skilled personnel, and gain new customers. If you’re considering selling, learn five reasons why your business needs a broker.
I will provide timely information. I am here to serve you.
Hedin E. Daubenspeck