79% of companies in the country report a drop in revenue.

A sharp drop in revenue, renegotiation with banks and suppliers, suspension of investments, and a review of digital strategy and product mix. This is the reality for most Brazilian companies during the crisis. A survey by the consulting firm Falconi, involving 408 companies ranging from micro to large, shows that 79% have already experienced a reduction in revenue due to the pandemic.

Among the affected companies, 25% had no revenue at all during the quarantine, such as those in the tourism, entertainment, and clothing sectors, and 25% experienced a drop in revenue of more than 50%, such as consulting firms and transportation companies.

The scenario outlined by these companies for a period of six months to a year is also critical: 44% believe that revenues will continue to fall. Clothing factories and stores fear that their revenue will remain at zero during this time, while general services and tourism see an impact on more than half of their sales.

This projection considers what would be an exit from the most acute phase of the crisis, with isolation. However, if this quarantine period is extended and if the pace of economic slowdown does not change, some companies will fail.

According to the research, 55% of companies, overall, can survive more than 90 days in the current scenario. This rises to 74% among large companies and falls to 39% among micro-enterprises – meaning that 61% of them could go bankrupt in less than three months.

“The risk for small businesses in the coming months is quite alarming, a concern that is already evident. It is also striking that half of the companies are projected to see a drop in revenue and cash flow even over a slightly longer period and when isolation is no longer expected,” says Flávia Maia, consultant at Falconi and one of those responsible for the research.

Nearly 70% of companies have already suspended all or part of their budgeted investment plan for the year. "Most eliminated capex to maintain cash," he says. Furthermore, half have already sought a bank to renegotiate rates and terms or to obtain new loans – but those who actually manage to find a solution are the large companies.

For 24% of micro-enterprises and 16% of small and medium-sized enterprises, financial institutions failed to present a solution that would help minimize the impact of the crisis, compared to only 1% of large companies with this problem.

Failing to renegotiate or obtain new credit can be decisive for the company's fate, hence the seriousness of the situation for smaller businesses.

“The mortality rate is closely related to the size of the company. There is a cause-and-effect relationship in sectors that are heavily affected, such as tourism and entertainment, but even in these activities, large companies with cash reserves and access to banks have a greater chance of survival,” says Flávia.

According to the survey, 70% of companies have already taken some action regarding labor, such as renegotiating or terminating contracts; 83% have sought renegotiations with their suppliers; and 69% have taken some action regarding inventory, especially to reduce levels and increase turnover.

While companies are trying to reduce or postpone expenses, others are attempting to secure some revenue stream through greater digital transformation. Of the companies that participated in the survey, 39% accelerated this digital process and 39% identified new opportunities in these channels that were not mapped before the crisis.

"Digital transformation is here to minimize the impact on results, but it also opens a new commercial path to reach the customer, one that companies were often afraid to pursue," says the consultant.

By Maria Luíza Filgueiras, Valor — São Paulo

Source: Economic Value