At a period when economic activities are slowing down, businesses need to stop burning cash and start accumulating as much cash as possible to serve as a buffer through this Coronavirus outbreak.
The following are ways start-ups could reduce spending:
- Cut personnel cost: Personnel costs for most businesses account for up to 50% of total expenditure. Attacking this line item becomes very critical for cost-cutting in any organization. I think non-essential staff should be put on temporary leave with a 50% pay cut while essential staff must work from the home network of their transport and feeding allowance which may shave off up to 25% of their salary.
- Halt all capital projects: Times of uncertainty are the worst times to burn up cash building capital projects. Most capital projects are developed using debt and debt servicing at this time when businesses are shut will be very difficult. For businesses that fund capital projects with equity, the money will be better spend ensuring work tools for Work From Home policy is available for essential employees.
- Restructure your debt with your bank: Even though you may have the cash to repay your loans this month, it’s best you start talking to a bank to restructure your loan and possibly suspend the payment of principal and interest for the next 3 months. Banks have been given a go-ahead by CBN for regulatory forbearance for customers in sectors who may see their businesses significantly impacted by a coronavirus. If your bank is willing to restructure your loans, it could free up more capital for you in this tough business period.
- Stop recruitment and hiring: This is the absolute worst time to be hiring. Maximize your team and be quick to fire weak links in this period. Suspend all forms of hiring except it is critical for business continuity.
- Adjust your sales price to reflect the new business environment: While price gouging to take advantage of the coronavirus is bad, business survival is critical and prices must reflect the new reality for many businesses. Rising inflation, naira devaluation and difficulty in commuting which triggers higher logistics cost are some of the reasons businesses should consider increasing the price of their products and services to cover for rising cost across some big line items in their financials.
- Keep your eyes open for intervention funds: It’s important for businesses to seek government intervention funds that support SMEs. The fund could be the difference in many businesses staying afloat in this difficult time.