Financial Anxiety
Bad news can make one anxious and a pandemic can certainly make one's head brim with anxiety, depression and stress. It is two months since the nationwide lockdown began in India and with life slowing down to a crawl, confined between the four walls of your room and the gloomy state of affairs all around, it is not uncommon to find yourself Feeling low or anxious is a normal response when you've lost your Work order & PO, has been made redundant, or you're struggling with debt.
What Is Financial Anxiety ?
Financial Anxiety is a condition in which a company or individual cannot generate revenue or income because it is unable to meet or cannot pay its financial obligations. This is generally due to high fixed costs, illiquid assets, or revenues sensitive to economic downturns.
As the pandemic looms large, sluggish economic growth in a "great lockdown" conjures up visions of a cascading fallout. The pandemic has increased pressure on all small and big businessmen with operations shut down and no backup plans. Apart from worrying about the safety of their families and loved ones, entrepreneurs and business leaders have additional stress regarding the company and the staff's survival in times of no revenue. Financial anxiety is a monetary monster that haunts many Indians, stoking worry for people across income levels. This has the potential to result in a "psychosocial syndrome" ie financial-anxiety, a "money anxiety disorder" which cultivates a feeling of stress, worry and concern about your finances, where individuals have uneasy and unhealthy anxiety about engaging with and administering their personal finance in an effective way.
Ignoring the signs of financial anxiety can be devastating for a company. There may come a time when severe financial anxiety cannot be remedied because the company or individual's obligations are too high and cannot be paid, and there is just not enough revenue to offset the debt. If this happens, bankruptcy may be the only option.
Understanding Financial Anxiety
If a company or individual experiences a period of time when it cannot pay its bills and other obligations by their due date, it is likely experiencing financial anxiety. Some of these expenses may include (expensive) financing, opportunity costs of projects, and employees who aren't productive. Employees of an Anxiety firm usually have lower morale and higher stress caused by the increased chance of bankruptcy, which could force them out of their jobs.
Companies under financial Anxiety may find it difficult to secure financing . They may also find their market value dropping significantly, customers cutting back orders, and suppliers changing their terms of delivery.
Looking at a company's financial statement can help investors and others determine its financial health. For example, negative cash flow under the cash flow statements is one indicator of financial Anxiety. This could be caused by a big difference between cash payments and receivables, high-interest payments, and a drop in working capital.
Signs of Financial Anxiety
There are multiple warning signs to indicate a company is experiencing financial anxiety. Poor profits may indicate a company is financially unhealthy. Struggling to break even indicates a business cannot sustain itself from internal funds and needs to raise capital externally. This raises the company's business risk and lowers its creditworthiness with lenders, suppliers, investors, and banks. Limiting access to funds typically results in a company (or individual) failing.
Poor sales growth or decline indicates the market is not positively receiving a company's products or services based on its business model. When extreme marketing activities result in no growth, the market may not be satisfied with the offerings, and the company may close down. Likewise, if a company offers poor quality products or services, consumers start buying from competitors, eventually forcing a business to close its doors.
When debtors take too much time paying their debts to the company, cash flow may be severely stretched. The business or individual may be unable to pay its own liabilities. The risk is especially enhanced when a company has one or two major customers.
Financial Anxiety in Large Financial Institutions
One factor contributing to the financial crisis of 2007-2008 was the government's history of emergency loans to distressed financial institutions and markets believed too big to fail. This history created an expectation for parts of the financial sector to be protected against losses.
The government safety net subsidizes risk-taking, investors who feel protected by the government may be less likely to demand higher yields as compensation for assuming greater risks. Likewise, creditors may feel less urgency for monitoring firms implicitly protected.
Excessive risk-taking means firms are more likely to experience Anxiety and may require bailouts to stay solvent. Additional bailouts may further erode market discipline.
Resolution plans, or living wills, may be an important method of establishing credibility against bailouts. The government safety net may be a less attractive option in times of financial anxiety.
How to get over Financial Anxiety
As difficult as it may seem there may be some ways to turn things around and get over financial Anxiety. One of the first things many companies do is to review their business plans. This should include both its operations and performance in the market, as well as setting up a target date to accomplish all its goals.
Another consideration is where to cut costs. This may include cutting staff or even cutting back on management incentives, which can often be costly to a business' bottom line.
Some companies may consider restructuring their debts. Under this process, companies that cannot meet their obligations can renegotiate their debts and change their repayment terms in order to improve their liquidity. By restructuring, they can continue operations.
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