The coronavirus outbreak is having a wide-ranging impact on global markets and businesses. It’s not only exporters that count on trade with China and multinational manufacturers that depend on the country as a hub for their supply chains that are experiencing significant disruptions to operations. It’s also not just the travel, hospitality, and conference businesses that are hard hit. Quarantine controls around the world are dampening consumer activity and spending overall. Lower demand is hurting many businesses big and small—some not immediately obvious—and is giving rise to increased uncertainty about potential ripple effects in the long term.
- For instance, fintech companies such as those that make money on card transactions have to grapple with both the immediate drop in spending, simply as a result of less travel and less going out, as well as the potential longer-term impact on valuations of the industry as a whole. This is a sector replete with, and conducive for, startup activity and venture capital money, which in recent years has tended to assign billions of dollars to even loss-making companies. A stock market slump and a potential economic downturn mean funding can be pulled back and valuations lowered fast.
- Some farther-down trickle effects might include increased complexity in business accounting. For instance, the newly implemented Current Expected Credit Losses rule mandates large public companies to forecast expected future credit losses as soon as financial instruments such as loans are originated or purchased. Before the CECL went into effect in December 2019, companies weren’t required to recognize losses until the losses had in fact been incurred. Credit loss predictions are difficult to make in the first place, but the coronavirus adds another layer of complexity, and it is too early to assess how the epidemic might affect a company’s ability to collect receivables. Small businesses and private companies have some leeway in this, as the rule does not take effect for them until fiscal years beginning in or after 2023.
In any case, there is no question that the coronavirus has had a jolting impact on markets and companies. Small businesses, as mentioned, are not immune to any of this. U.S. small-business confidence was high at the start of the year—in fact, early February, the overall confidence index based on a survey by Vistage Worldwide Inc. hit its highest point in 15 months. It remains to be seen whether this confidence holds and how serious the virus-related damage might be to their business. It is too early to tell, but a recent survey of small businesses conducted by Veem provides some context: 30% of respondents expect the coronavirus to have a moderate-to-high impact on their supply chain, and 27% expect a moderate-to-high impact on revenue. At the same time, slightly more than half, 52%, said they are taking steps to prepare for an economic slowdown. These measures include changing suppliers, decreasing costs and increasing prices.
These kinds of preparations, plus taking advantage of policy action (i.e., lowered interest rates), seem to be really the only things that a business can do at this time as significant uncertainties remain. We’re in an environment when there are more questions than answers regarding what is arguably one of the biggest factors affecting markets. Small or big, businesses would do well to be mindful of risks and take steps to prepare for a potential economic setback.
Mr. Lieberman is the founder and CEO of The CEO’s Right Hand, Inc., a New York-based consulting services firm that provides the full breadth of strategic, financial and operational advice to founders, CEOs and Executive Teams. As an experienced entrepreneur himself, he has served in various C-suite leadership and advisory roles across a wide spectrum of industries.
His first venture was CMR Technologies, a FinTech company based in San Francisco serving the investment management consulting space. From CMR, Mr. Lieberman formed Xtiva Financial Systems, a software company specializing in sales compensation solutions for the financial services industry. Mr. Lieberman served as Xtiva’s CEO, building the company to over $10 million in revenues and 100+ clients. He also served as the President and CFO for Interactive Donor, a New York-based Benefit Corporation which incentivizes charity through rewards.
Mr. Lieberman holds double Masters degrees, one in Business Administration and the other in Computer Science from the University of California at Los Angeles. He completed his Bachelors in Computer Engineering from the University of California at San Diego.