Reducing Operating Costs for Your Startup Is basic for Longevity

Cash flow management is already a challenge for startups, but COVID-19 is not making matters better. With unemployment rising and people spending less money on certain goods or sets, startups are likely to suffer during this time. However, reducing operating expenses can help a startup stay afloat until operations are back to normal.

Reducing overall operating costs can certainly impact your bottom line, especially as the impact of COVID-19 is felt. Also, reevaluating the budget and allocating funds to different operations can keep basic parts of your business going. Keep reading to learn more about how to reduce the operating expenses for your startup while staying productive during COVID-19.

Review your budget with a new lens

When you produced your budget for the year, the coronavirus was not likely to be on your mind. And, with updates and changes happening so fast over the last several months, 2020 can feel like one big game of catchup. Now that shelter-in-place ordinances are lifting and people are venturing back out into the world, it is a good time to reevaluate your operating budget.

Revenue projections are likely in need of an update, and your outlook for 2021 is different now than it was a few months ago. From lower sales numbers to higher churn rates, the priorities of your budget need to be evaluated. However, it is important to avoid simply slashing your budget. Wisely evaluating the numbers may indicate that some areas of your business are truly improving during this time.

Renegotiate contracts

The impact of COVID-19 is being felt across the country. If your business has shifted, it is likely that others connected to you have done the same. You may be able to renegotiate terms or contracts during this time to give yourself some breathing room. From reducing office costs to eliminating subscriptions, there are some measures you can take to prevent waste.

Office Space

If your company has shifted to far away work, you are likely paying for empty office space. Your landlord may be willing to negotiate your terms due to the unheard of circumstances. In some situations, shelter-in-place orders may prohibit you from working in the office altogether. Review your contract to see if there are any provisions for a situation when the office space is not usable.

Subscriptions

Your startup likely has multiple active subscriptions. Whether you rely on monthly specialized sets, like IT sustain, or SaaS licenses to run your business, there might be some room for cuts. Try negotiating with your partners or vendors to reduce subscription costs. You may have licenses that you are no longer using or termination fees that can be renegotiated.

Deferred Payments

In situations where you cannot reduce operating costs in numbers, ask for deferred payments. Lengthening the payment cycle can enhance your cash flow temporarily and get you by a rough patch.

Eliminate nonessential tools

When you reevaluate your budget, you may find that it is skewed in one area. Go line by line to review the various tools and sets used by your business, determine which are basic and which items can be cut. Reviewing financial statements is a great way to visualize where your budget is going, instead of assuming. You may have duplicate tools, tools that are no longer in use, or items that can be replaced with a less expensive different.

Cut Unnecessary Licenses

Reviewing all the tools and sets used by your team could also highlight which sets have too many licenses. Are all licenses being used, or can some be deleted? Also, you may be paying for additional roles that you could go without, at the minimum for the time being. Dropping your subscription tier or reducing the number of licenses could help lower operating costs.

Cut Out Paper

While it may seem small, going paperless can help your bottom line. Businesses use quite a bit on paper, printers, and ink every year. If your team is working far away, there is already less reason to use paper. When you return to the office, you can continue the habits formed during quarantine to reduce the overall paper usage of your business.

Stay flexible

Things are likely to continue changing as we learn more about COVID-19 and its overall impact. There may be doubtful opportunities to reduce your operating expenses over time. The unpredictability of COVID-19 combined with the changing character of startups makes it important to stay on your toes. You may find yourself considering new or inventive ideas that you would not have before thought of.

estimate More Frequently

regularly evaluating your budget and outlook can help you stay more nimble and flexible. As your startup changes and evolves, your operating costs need to follow. Set up more frequent evaluations to stay on top of your operating costs and adjust as needed.

Pause large investments or projects

For many startups, cash flow is limited. COVID-19 is putting major purchases and projects on keep up until businesses can stabilize. Instead of considering these pauses as losses, pay attention to the money you are saving and the cash you are making obtainable.

New Equipment

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

Marketing Initiatives

Unless your marketing initiatives are seeing a positive ROI, it may be time to pause big projects. Instead of rolling out before scheduled campaigns, reevaluate your marketing calendar to determine what will move the needle for your business. If your customers are pushing off on buying decisions, now might not be the time to invest in sales and marketing.

Utilize Free Trial Periods

If you absolutely must buy a new service or equipment, take advantage of free trial periods. Ensure the vendor is the right partner for you by testing their product or service ahead of time. In some situations, vendors will negotiate on the trial period if you are serious about buying.

Reduce payroll

Finally, reducing payroll can help lower operating costs. Many startups see this as a last resort because it greatly impacts your operational capacity in addition as the individual lives of employees. However, in some situations, it is a necessary measure.

Implement a Hiring Freeze

You can make steps towards reducing operational costs by implementing a hiring freeze. Avoid filling locaiongs unless necessary. Your team may be stretched thin, but you can avoid eliminating current locaiongs this way.

Contract Out

Instead of hiring for new locaiongs, contract out when possible. For example, you may need financial guidance during COVID-19. You can contract with a freelance CFO to work part-time at a lower cost than hiring an executive-level position. Firms like K-38 Consulting provide sets from top-notch financial advisors, and you only pay for sets when you need them.

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