Even though the coronavirus is directly impacting the economy, consumer confidence remains high. This according to the February 2020 Money Anxiety Index. The index for February has gone down by 1.2 points to 40.9, indicating consumer resiliency.
February 2020 Money Anxiety Index
The decrease in the points indicates higher financial confidence among consumers, prompting more spending by consumers. The Index measures the level of financial confidence of consumers based on actual financial behavior. According to the Index, a lower level of money anxiety translates to greater consumer spending. This is critical to the U.S. economy of which nearly 70% of the nation’s economy is made up of consumer consumption.
Too Soon to Celebrate
However, analysts are cautiously optimistic on whether the trend will continue to see more good news in consumer spending. They say the real test of consumers’ resiliency will come in April after the Government releases the March figures.
“Next month we will also know if the emergency-Fed-rate cut did more good than harm to the economy,” says Dr. Dan Geller behavioral economist and founder of Analyticom.
Geller argues by cutting the funds rate in a panic, the Fed decreased the cost of borrowing, prompting the decline in the index. He, however, warns unintended consequences at a much higher level of money anxiety can take place.
The index is touted to be highly effective. It is credited to have predicted both the Great Recession and the recession in December of 2007. As such it functions as an early-warning system to shifts in the economy, allowing financial advisors to react in time to changes in the economic cycle.
How Will Business be Impacted
Challenges sometimes do present opportunities for those who seek them. As such in any economic state agile businesses look beyond the threats and provide solutions to people’s needs. In this case, businesses will need to look for opportunities to capitalize on the coronavirus scare.
Those in travel and events businesses might see a continued decline in demand while others can see opportunities. In the short term, however, businesses can take advantage of the upswing of consumer confidence and double down on their in-house offerings. Making for good sales forecasts in home entertainment systems as many would try to avoid public venues in light of the coronavirus scare.
Similarly, grocery stores are seeing an increase in demand for frozen foods and food supplies as people avoid crowds and eat at home. In any event, a re-look at businesses cash flow can help mitigate the consequences of a possible increase or decrease in business. Similarly, demand for hand sanitizers, disinfectants and other toiletries might continue to go up.
With companies allowing work from home options businesses too can help tap into this windfall through the provision of courier services, stationery supplies and other deliveries.
Those hardest hit by the coronavirus scare can look at retrenching strategies. They can cut back on certain offerings the virus will impact and offer up services that are least likely to be affected.
Managing the Cash Flow of Your Business
Cash flow simply put is the amount of cash that moves through your business in the form of revenues and expenses. Cash flow in practical accounting represents the cash required to keep your business running on a day-to-day basis. It addresses a myriad of questions in your business and asks questions such as these. Will the business generate cash quickly, or will it take a long time? How long will collecting cash due from customers or selling inventory take? Similarly, how much will you have to invest in fixed assets and how quickly will your sales be established?
Unpredictable cash flow is troublesome at best and can be detrimental to your business. Healthy cash flow will ensure you can pay salaries on time and have funds available for growth and expansion. Having a good picture of your cash flow can help you make prudent business decisions. If your business runs out of cash then it means you have no funds to run your business.
Don’t confuse cash flow with profitability. Cash flow merely measures the results of the entire operation of the business. profitability in the other hand provides the benchmarks for measuring the effectiveness of your operations, cash flow is what pays the bills.
As a business owner, you need to understand and project your business’ cash needs. Similar to tracking your profit and loss, projecting your cash flow can help you tackle business challenges that might come your way.
Your cash projection will help you determine how much of inventory you need to sell to remain in the green; whether you need to reduce operating costs to stem the hemorrhaging of cash through unprofitable operations; or making sure payment collections are on time.