Cash Flow Is One Of The Highest Business Priorities Because Reducing Operating Costs for Your Startup Is Essential for Longevity

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Reducing Operating Costs for Your Startup Is Essential for Longevity

Managing cash flow is already a challenge for startups, but COVID-19 isn’t making things any better. As unemployment rises and people spend less money on certain goods or services, startups are likely to suffer during this time. However, cutting operating costs can help a startup stay afloat until business returns to normal.

Reducing total operating costs can certainly impact your bottom line, especially as the impact of COVID-19 is felt. Also, reassessing the budget and allocating funds to different operations can sustain essential parts of your business. Keep reading to learn more about how to reduce operational costs for your startup while staying productive during COVID-19.

View your budget with a new lens

When you created your budget for the year, you probably didn’t have the coronavirus on your mind. And with updates and changes happening so quickly over the past few months, 2020 can seem like one big game of catch-up. Now that shelters are being lifted and people are venturing back out into the world, it’s a good time to review your operating budget.

Revenue projections will likely need updating, and your outlook for 2021 is different now than it was a few months ago. From lower sales numbers to higher churn rates, your budget needs to be prioritized. However, it is important to avoid simply cutting the budget. Judging the numbers wisely can mean that some areas of your business are actually improving during this time.

Re-negotiate contracts

The impact of COVID-19 is felt throughout the country. If your job has changed, it’s likely that others associated with you have too. You may be able to renegotiate terms or contracts during this time to give yourself some leeway. From reducing office expenses to canceling subscriptions, there are some measures you can take to prevent waste.

Office space

If your company has switched to remote work, you’re probably paying for empty office space. Your landlord may be willing to negotiate your terms due to unprecedented circumstances. In some cases, shelter-in-place orders may prohibit you from working in the office entirely. Review your contract to see if there are provisions for the situation when the office space is not usable.

Subscriptions

Your startup probably has multiple active subscriptions. If you rely on monthly professional services, such as IT support or SaaS licenses to run your business, there could be room for cuts. Try to negotiate with your partners or suppliers to reduce subscription costs. You may have licenses that you no longer use or termination fees that can be renegotiated.

Deferred payments

In cases where you cannot reduce the operating costs in numbers, request a payment delay. Extending your payment cycle can temporarily improve your cash flow and put you in a tight spot.

Remove non-essential tools

When you reevaluate your budget, you may find that it’s skewed in one area. Go line by line to review the various tools and services your company uses, determine which are essential and which items can be cut. Reviewing your financial statements is a great way to visualize where your budget is going, rather than making assumptions. You may have duplicate tools, tools that are no longer in use, or items that can be replaced with a cheaper alternative.

Cut unnecessary licenses

An overview of all the tools and services used by your team can also highlight which services have too many licenses. Are all licenses used or can some be eliminated? Also, you may be paying for additional features that you could do without, at least for now. Eliminating subscription tiers or reducing the number of licenses could help reduce operating costs.

Cut paper

Although it may seem small, going paperless can help. Businesses spend a lot every year on paper, printers and ink. If your team works remotely, there’s even less reason to use paper. When you return to the office, you can continue the habits you learned during quarantine to reduce the overall paper consumption of your business.

Stay flexible

Things will likely continue to change as we learn more about the COVID-19 disease and its overall impact. There may be unlikely opportunities to reduce your operating costs over time. Due to the unpredictability of COVID-19 combined with the volatile nature of startups, it is important to remain vigilant. You may find yourself thinking of new or innovative ideas that you wouldn’t have thought of before.

Evaluate more often

Periodically evaluating your budget and layout can help you stay more agile and flexible. As your startup changes and evolves, your operating expenses must keep up with it. Set up more frequent estimates to stay on top of operating costs and adjust as needed.

Pause large investments or projects

For many startups, cash flow is tight. COVID-19 is putting major purchases and projects on hold until business stabilizes. Instead of thinking of these breaks as losses, pay attention to the money you’re saving and the cash you’re making available.

New equipment

Have you planned to upgrade everyone’s laptops or buy a new phone system this year? COVID-19 may not be the right time to make big investments like buying new equipment. Instead, buy only what is necessary. Look for refurbished or used items when possible to save on operating costs.

Marketing initiatives

Unless your marketing initiatives are generating a positive ROI, it may be time to put the big projects on hold. Instead of launching pre-scheduled campaigns, reevaluate your marketing calendar to determine what will move the needle for your business. If your customers are unwilling to make purchasing decisions, now may not be the time to invest in sales and marketing.

Take advantage of free trial periods

If you absolutely must buy a new service or equipment, take advantage of the free trial periods. Make sure the supplier is the right partner for you by testing their product or service beforehand. In some cases, suppliers will negotiate a trial period if you are serious about buying.

Cut wages

Finally, reducing wages can help reduce operating costs. Many startups see this as a last resort as it greatly affects your operational capability as well as the individual lives of employees. However, in some cases it is a necessary measure.

Implement a hiring freeze

You can take steps toward reducing operating costs by implementing a hiring freeze. Avoid filling positions unless necessary. Your team may be exhausted, but this way you can avoid eliminating current positions.

Contract outside

Instead of hiring for new positions, contract when possible. For example, you may need financial guidance during the COVID-19 illness. You can contract a freelance CFO for part-time work at a lower cost than hiring an executive position. Companies like K-38 Consulting provide the services of top financial advisors, and you only pay for the services when you need them.

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