Accounting For Deferred Income On The Cash Flow Statement Reducing Operating Costs for Your Startup Is Essential for Longevity

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Reducing Operating Costs for Your Startup Is Essential for Longevity

Cash flow management 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 period. However, reducing operating costs can help the startup continue until operations return to normal.

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

Review your budget with a new lens

When you prepared your budget for the year, the coronavirus was unlikely to be on your mind. And, with updates and changes happening so quickly over the past few months, 2020 can seem like one big game of catchup. Now that shelter-in-place ordinances are being lifted and people are starting to get back out into the world, it’s a good time to reevaluate your operating budget.

Earnings forecasts may need an update, and your outlook for 2021 is different now than it was a few months ago. From low sales numbers to high rates, your budget priorities need to be evaluated. However, it’s important to avoid blowing your budget. A judicious assessment of the numbers may indicate that certain areas of your business are improving during this period.

Renegotiate the contract

The impact of Kovid-19 is being felt across the country. If your business has moved, chances are others connected to you have too. You can renegotiate terms or contracts during this time to give yourself some breathing room. From reducing office expenses to eliminating subscriptions, there are steps you can take to avoid waste.

office space

If your company has shifted to remote work, you’re 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 can prevent you from working in the office altogether. Review your contract to see if there are any provisions for situations where the office space is unusable.

Membership

Your startup probably has many active memberships. Whether you rely on monthly professional services such as IT support or SaaS licenses to run your business, there may be some room for deduction. Try to negotiate with your partners or vendors to reduce subscription costs. You may have licenses that you no longer use or termination fees that can be renegotiated.

Deferred payment

In cases where you cannot reduce operating expenses numerically, ask for deferred payment. Extending the payment cycle can temporarily improve your cash flow and get you out of a rough patch.

Remove unnecessary tools

When you reevaluate your budget, you may find that it’s out of whack in one area. Queue to review the various tools and services used by your business, determine which are essential and which items can be cut. Without assuming, reviewing your financial statement is a great way to see where your budget is going. You may have duplicate tools, tools that are no longer in use, or items that can be replaced with a less expensive alternative.

Cut out unnecessary licenses

Reviewing all the tools and services used by your team can also highlight which services have too many licenses. Are all licenses being used, or can some be removed? Plus, you’ll be paying for extra functions that you can go without, at least for a while. Dropping your subscription tier or reducing the number of licenses can help reduce operating costs.

Cut the paper

Although it may seem small, going paperless can help your bottom line. Businesses spend quite a bit on paper, printers and ink every year. 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 developed during quarantine to reduce your business’s overall paper usage.

Be flexible

Things are likely to continue to change as we learn more about COVID-19 and its overall effects. It may be less likely to reduce your operating costs over time. The unpredictability of COVID-19 along with the changing nature of startups makes it important to stay on your toes. You may find yourself considering new or innovative ideas that you may not have considered before.

Evaluate more frequently

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

Stop major investments or projects

For many startups, cash flow is limited. COVID-19 is putting major purchases and projects on hold until business stabilizes. Instead of seeing these breaks as a loss, focus on the money you’re saving and the money you’re making available.

New equipment

Are you planning to upgrade everyone’s laptop or buy a new phone system this year? COVID-19 may not be the right time to make a big investment like buying new equipment. Instead, stick to buying only what you need. Look for refurbished or second-hand items when possible to save on operating costs.

Marketing activities

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

Use the free trial period

If you need to purchase new services or equipment, take advantage of the free trial period. Make sure the vendor 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 are serious about buying.

Reduce salary

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

Enforce a hiring freeze

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

Out of contract

Instead of hiring new positions, contract whenever possible. For example, you may need financial guidance during COVID-19. You can contract with a freelance CFO to work part-time for less than taking on an executive-level position. Firms like K-38 Consulting provide services from high-quality financial advisors, and you only pay for services when you need them.

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