Managing cash flow is already a challenge for startups, but COVID-19 is not making things better. With unemployment rising and people spending less money 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.

Lowering overall operating costs can certainly affect your bottom line, especially when the impact of COVID-19 is being felt. Plus, re-evaluating your budget and allocating funds to different operations can keep essential parts of your business running. Read on to learn more about reducing your startup operating expenses while staying productive during COVID-19.

Check your budget with a new lens

When you created 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 a great catch-up game. Now that shelter-in-place ordinances are being lifted and people are venturing out into the world, it’s a good time to reassess your operating budget.

The 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 figures to higher churn rates, you need to assess your budget priorities. However, it is important to avoid simply cutting back on your budget. A smart assessment of the numbers can indicate that some areas of your business are improving during this time.

Renegotiate contracts

The impact of COVID-19 is being felt across the country. If your business has changed, chances are that other people related to you have done the same. You may be able to renegotiate the terms or contracts during this time to give yourself some breathing room. From reducing office costs to eliminating subscriptions, there are a few steps you can take to avoid waste.

Office space

If your company has moved into remote work, chances are you are 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 any provisions for a situation where the office space is not usable.

Subscriptions

Your startup likely has multiple active subscriptions. Whether you rely on monthly professional services like IT support or SaaS licenses to run your business, there may be room for cutbacks. Try to negotiate with your partners or vendors to lower your subscription costs. You may have licenses that you are no longer using or cancellation fees that can be renegotiated.

Deferred payments

In cases where you can’t cut operating costs in numbers, ask for deferred payments. Lengthening your payment cycle can temporarily improve your cash flow and help you get through a losing streak.

Eliminate non-essential tools

When you reevaluate your budget, you may find that you are biased in one area. Go line by line to review the various tools and services your business uses, determine which ones are essential and which items can be cut. Reviewing financial statements is a great way to visualize where your budget is going, rather than guessing. You may have duplicate tools, tools that are no longer used, or items that can be replaced with a less expensive alternative.

Cut unnecessary licenses

Reviewing all the tools and services used by your team might also highlight which services are over-licensed. Are all licenses being used or can some be removed? Plus, you may be paying for additional features that you could do without, at least for now. Eliminating your subscription level or reducing the number of licenses could help lower operating costs.

Cut paper

While it may seem small, not using paper can help your bottom line. Businesses spend a lot on paper, printers, and ink every year. If your team works remotely, there are fewer reasons 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 business.

Stay flexible

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

Evaluate more often

Regularly evaluating your budget and outlook can help you stay more agile and flexible. As your startup changes and evolves, your operating costs must follow. Set up more frequent evaluations to stay on top of your operating costs and make any necessary adjustments.

Pause large investments or projects

For many startups, cash flow is limited. COVID-19 is suspending major purchases and projects until companies can stabilize. Rather than viewing these breaks as losses, pay attention to the money you are saving and the cash you are making available.

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, such as buying new equipment. Instead, limit yourself to buying only what you need. Look for reconditioned or second-hand items when possible to save on operating costs.

Marketing Initiatives

Unless your marketing initiatives get a positive ROI, it may be time to stop big projects. Rather than implementing pre-scheduled campaigns, re-evaluate your marketing calendar to determine what will move the needle on your business. If your customers are pushing for purchasing decisions, now may not be the time to invest in sales and marketing.

Use free trial periods

If you absolutely must purchase a new service or equipment, take advantage of the free trial periods. Make sure the vendor is the right partner for you by testing your product or service in advance. In some cases, vendors will negotiate during the trial period whether you really want to buy.

Reduce payroll

Finally, reducing payroll can help lower operating costs. Many startups see this as a last resort because it has a huge impact on their operational capacity, 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 to reduce operating costs by implementing a hiring freeze. Avoid occupying positions unless necessary. Your team may be overstretched, but you can avoid eliminating current positions this way.

Hire

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