This needs no telling that these are extraordinary circumstances. The global economy is in recession and Lord knows how long this pandemic will last. You can’t wait that long. Your business will go under if you are waiting for things to get better.
I own a small company called Alpha and a few other startups which haven’t had the chance to spread their wings yet. My company is fortunate enough to have enough cash to sustain for more than 8 months without any sales or needing any bailout from investors. This, however, is no way to sustain.
Related: Don’t Join A Catering Company
To increase our runway and reduce our cash burn rate we have taken some obvious, some drastic, and some really small measures. It is advisable that companies should have three contingency plans where the downturn lasts for 3/6/12 months. When things don’t go according to plan, don’t expect your investors to bail you out. With the exception of some industries like edutech or biotech, investors everywhere are waiting it out on their investments. Hence it is safer to operate under the assumption of the worst possible outcome.
Below are 12 things you can do to reduce your burn rate. Alpha has already implemented most of the measures and you can too!
0. Talk to your team
This is step zero. Ask your team about what their thoughts are on cutting costs/reducing cash burn. Ask how can the company do it better. Be honest about the situation. It’s okay to freak out a little. Make them understand the reality of the situation and ask for their input. You’ll be surprised to see how supportive and understanding your team is during times like these. Since, we’re all in this together, making your employees a part of the decision-making process is the first step towards a smooth implementation of the austerity measures.
1. Completely stop your marketing ad spend
While the cost per reach/engagement has come down since there are fewer brands vying for attention, people everywhere are cutting back on their personal spending so your efforts won’t convert anytime soon.
2. Freeze hiring for the foreseeable future
3. IMPORTANT: Cut down on the small things
Check if you can do all of them:
(i) No meal allowances for employees. No coffee/tea too. Ask your team to bring their own coffee sachets/meals when office resumes. If your office makes staff meals inhouse, then redo the menu to a simpler one. Replace proteins with vegetables and eggs for some of the days.
(ii) No phone/internet allowance
(iii) No special meals on Thursdays/designated special day
(iv) No monthly BBQs/office events
(v) No AC for the next 3-4 months. Open the curtains, use natural light and fan. Bare minimum number of lights and equipment should be used. Turn off any additional equipment that you don’t need.
(vi) No stationary. Each person buys his/her own pen, stapler etc.
(vii) No color printing
(viii) Reduce your office’s internet bandwidth
(ix) Stop your office’s newspaper/magazine subscriptions
(x) No tissue/napkins for use in the office. Everyone is responsible for their own tissues. TP is fine. That would be too extreme! 🤣
(xi) No meeting or outside lunch/dinner billing. Each person is responsible for packing his/her own meals from the office caterer before he/she leaves for meetings.
(xii) Transportation allowances should be based on bus fare only. So if anyone is using Uber/Pathao, ask them to do so at their own expense. In case of urgent situations, exceptions can be considered.
4. Push back your payables & bring forward your receivables
It’s more important now than ever to pursue all your receivables. Start with the big ones but also keep those small invoices in check too. Don’t let any amount become a bad debt. Negotiate with your supplier for a longer credit term. This applies to your landlord too.
5. Renegotiate supplier prices & terms
If you have prices fixed for a certain period with a vendor, now is the time to renegotiate the prices and terms.
6. Defer your tax liabilities
Talk to your tax consultant. Given the extraordinary situation, there are ways to defer and reduce your tax liabilities.
7. Withdraw cash from security deposits
If your company has money stuck somewhere as a security deposit, consider withdrawing it.
8. Defer salaries, increments & cut bonuses
This is where it starts affecting your team personally. Salaries can be deferred at different rates for different salary ranges. But how long should it be for: 4 months/till the company is profitable again? Should increments be factored in or postponed all together? Should bonuses be paid or be canceled or postponed? How should the repayment be done: in installments/at one go? These are questions that you and your team need to answer.
9. Reduce salaries
Should it be supported by reduced working days? Should it be reduced working hours per day? How much is a tolerable reduction?
10. Watch out for grants/bailouts/government incentive
Governments all over the world are considering bailout packages for different industries. Keep an eye on the news for any such news that”’ provide you with additional runway.
11. Pivot/change your business model
This might be a very unpopular opinion but I believe businesses should consider moving into other relevant industry verticals. For instance, we are moving into retail one-person sales from our high-volume catering orders using a cloud kitchen model. This might fail spectacularly but we are seeing this an additional revenue over the long term. We are willing to try everything before even thinking about the next option.
12. (Temporary) Layoffs
The reason why I kept if for the last is because I want you to explore every single possibility before coming to this life-changing decision. This is perhaps the hardest of them all. Please consider the humanitarian side of your decisions. Those who’ll lose their jobs won’t find jobs anytime soon. Letting the team that you’ve built from scratch go is perhaps one of the hardest decisions you’ll ever make. But if it comes down to the survival of the company vs individuals, you’ll know what to do. But before that, please consider temporary layoffs before permanent layoffs. You won’t be finding a better-trained team out there anytime soon.
You might be thinking that some of the measures are minuscule and may not result in anything substantial. But I can tell you that this: back in 2008, someone I know who used to be a State Planner in Australia successfully implemented these small measures and saved everyone their job. Maybe we’ll hear some positive stories this time around too! 😊 Reducing your cash burn rate during COVID-19 is the only way you’re going to get out this stronger than before.
Your feedback matters
It’s been a while since I wrote something. So please do let me know what you think of these austerity measures. Do they make sense? Is there something more we can do? Drop your two cents below.
