• Mateusz Medyński

How much cash do the Polish entrepreneurs hold–how long can they cover general costs without revenue

The coronavirus and the quarantine aimed at combating it mean a general loss of revenue for all Polish companies and a significant one for most of them. Companies keep reserves of cash (or easily cashable assets) exactly for a situation like this. Only those, who have enough cash to cover their current costs and those who cut costs the fastest, will survive. This rule applies to the entire world.


Worldwide the situation differs. America’s example may well be the best one here. As the American economy slides into the grip of recession, American entrepreneurs quickly deinvest and liquidate their assets (stocks, tangible assets etc.) Most recent data suggests (economist.com) that American firms have enough cash to cover 7 months of operating expenses (opex). This is quite a lot. Of course some have much more than others (the legendary Apple pile of cash can feed them for 6 years) and therefore most of the average entrepreneur holds about three months’ worth of opex in cash. Unfortunately there are those who have enough for a month or even a week. Those entrepreneurs, without immediate help, will be the first to fall.


How does this compare to Polish entrepreneurs? Polish people are not known worldwide for their thriftiness. We only started to record an increase in savings in 2019 among consumers and entrepreneurs. Before that Poland practically did not believe in savings. We used to spend it as we earned it (after all money must circulate).


Unfortunately experience shows that an average Polish company has about 2-3 months’ opex worth of savings. This means than even before the quarantine is lifted, most Polish companies will run out of money. Only those who immediately cut costs and prepare for the crisis will survive.


Despite the silly comments of some of the politicians, Covid-19 is here to stay and will not leave us within 2 months. Some virologists indicate a period of 2 years. What will Polish companies live on during that time?


As always Polish people will not trouble themselves with the epidemics (you can see the crowds in DUY stores and grocery malls) and unless they themselves fall ill, there will not be a significant change in their lifestyles. The fact remains that after the epidemics all of us will have much less funds in our wallets than before and this will adversely influence demand and limit consumption. When we are planning to save our business we have to therefore take into account not only the current revenue shortage until June 2020 (without State help there is little chance of rescue) but also a general slump in demand for our goods and services (unless our business is mask and disinfectant production) for the next 12 months.


A major problem is also that the so called 'rescue package' proposed by the Polish government will change little. Delay in social security payments? Where will a company with no income find the cash to pay the delayed premiums in 3 months? The crisis can be resolved only by flooding the market with cash. Unfortunately, apart from actually printing money, the government has no idea how to come up with the funds. Promises of bonuses or cuts in the future will not influence the simple mathematic fact, that if you have 100.000 PLN of bills to pay and only 30.000 PLN in you account, you have a debt problem. No promises can change this. Someone must give you the missing 70.000 PLN. And if nobody saves you with the cash than you should close the company as quickly as possible (otherwise you may risk liability against your private assets for the debts of your company) and wait for a better tomorrow. Alas, this is where the difference between an optimist and a pessimist comes into play. The optimist believes that matters cannot possibly get any worse, the pessimist believes that they can.


Please find more in another interesting article here: https://www.economist.com/finance-and-economics/2020/03/21/why-americas-financial-plumbing-has-seized-up

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