Managing cash flow is already a challenge for startups, but COVID-19 isn’t making things any better. With high unemployment and low spending on certain goods or services, startups are likely to suffer during this time. However, reducing operating expenses can help a startup stay afloat until operations return to normal.
Reducing your overall operating costs can certainly affect your bottom line, especially when the impact of COVID-19 is felt. Also, reevaluating the budget and allocating money to different operations can keep essential parts of your business running. Keep reading to learn more about how you can reduce operating expenses for your startup while staying productive during COVID-19.
Revise your budget with a new lens
When you created your budget for the year, coronavirus likely wasn’t on your mind. And with updates and changes happening so quickly over the past several months, 2020 can feel like one big game of catching-up. Now that shelter laws are in place and people are back in the world, it’s time to reassess your operating budget.
Revenue forecasts likely need an update, and your outlook for 2021 is different now than it was a few months ago. From low sales numbers to high turnover rates, you need to assess your budget priorities. However, it is important to avoid just cutting your budget. A wise assessment of numbers may indicate that some areas of your business are actually improving during this time.
Contract renegotiation
The impact of COVID-19 is being felt across the country. If your business has shifted, others associated with you will likely have done the same. You may be able to renegotiate terms or contracts during this time to give yourself some breathing room. From cutting office costs to canceling subscriptions, there are some actions you can take to prevent waste.
office space
If your company shifts to remote work, chances are you’re paying for empty office space. Your landlord may be willing to negotiate your terms due to the unprecedented circumstances. In some cases, shelter-in-place orders may prevent you from working in the office altogether. Check your contract to see if there are any provisions for a situation where the office space is not usable.
Subscriptions
It is likely that your startup will have several active subscriptions. Whether you rely on monthly professional services, such as IT support, or SaaS licenses to run your business, there can be room for cuts. Try to negotiate with your partners or vendors to reduce subscription costs. You may have licenses you no longer use or termination fees that can be renegotiated.
deferred payments
In cases where you cannot reduce operating costs by numbers, ask for deferred payments. Extending your payment cycle can temporarily improve your cash flow and notify you of a rough correction.
Get rid of unnecessary tools
When you re-evaluate your budget, you may find that it is skewed in one area. Go line by line to review the different tools and services your business uses, and identify the essential ones and the ones that can be cut. Reviewing financial statements is a great way to visualize where your budget is going, rather than making an assumption. You may have duplicate tools, tools that are no longer in use, or items that can be replaced with a less expensive alternative.
Cut off unnecessary licenses
A review of all the tools and services your team uses can also highlight services with too many licenses. Are all licenses used or can some be revoked? Also, you may be paying for additional functionality that you can do without, at least for the time being. Dropping your subscription tier or reducing the number of licenses may help lower operating costs.
paper cutting
Although it may seem small, going paperless can help your bottom line. Companies spend a lot on paper, printers, and ink each year. If your team is working remotely, there is less reason to use paper. When you return to the office, you can continue the habits formed during the quarantine to reduce the overall use of paper in your work.
Be flexible
Things will likely continue to change as we learn more about COVID-19 and its overall impact. There may be unlikely opportunities to reduce operating expenses over time. The unpredictability of COVID-19 combined with the changing nature of startups makes it important to stay vigilant. You may find yourself thinking of new or innovative ideas that you might not have thought of before.
Evaluate more frequently
Periodically assessing your budget and expectations can help you stay more agile and flexible. As your startup changes and evolves, you must keep track of your operating costs. Prepare more frequent evaluations to stay on top of your operating costs and adjust them as needed.
Temporarily stopping large investments or projects
For many startups, cash flow is limited. COVID-19 is suspending major procurement and projects until businesses can stabilize. Instead of seeing these pauses as losses, pay attention to the money you save and the money you save.
New equipment
Have you been planning on updating everyone’s laptops this year or buying a new phone system? COVID-19 may not be the time to make a major investment like purchasing new equipment. Instead, stick to buying only what’s essential. Look for refurbished or used items when possible to save on operating costs.
Marketing initiatives
Unless your marketing initiatives are seeing a positive return on investment, it may be time to pause large projects. Instead of launching pre-scheduled campaigns, re-evaluate your marketing calendar to determine what will move the needle for your business. If your customers are stressing you with purchasing decisions, this may not be the time to invest in sales and marketing.
Take advantage of free trial periods
If you must purchase a new service or equipment, take advantage of free trial periods. Ensure that the seller is the right partner for you by testing their product or service ahead of time. In some cases, sellers will negotiate a trial period if you’re serious about buying.
Reduce salaries
Finally, reducing payroll can help lower operating costs. Many startups see this as a last resort because it greatly affects your operational capacity as well as the individual lives of employees. However, in some cases, it is a necessary measure.
Implementation of a hiring freeze
You can take steps to reduce operational costs by implementing a hiring freeze. Avoid filling positions unless necessary. Your team may be stretched out, but you can avoid getting rid of existing positions this way.
out of contract
Instead of hiring for new positions, contract when possible. For example, you may need financial guidance during COVID-19. You can hire an independent CFO to work part-time for less than hiring an executive position. companies like K-38 Consulting Provide services from top notch financial advisors, and pay for services only when you need them.
