If you’re concerned about a looming recession, high inflation, rising interest rates, weak consumer sentiment and the war in the Ukraine creating economic uncertainty, you’re not alone.
As a startup, it can already be hard enough to grow, let alone grow when economic conditions are unfavourable.
So, how can startups remain resilient amid the current economic uncertainty?
Stay positive
Don’t forget that it’s normal for economic uncertainty to occur, and that many startups survive and thrive during recessions, economic volatility and even COVID-19. Therefore, the key message is to stay positive. Focus on keeping your business resilient and be strategic, but just remember that economic uncertainty is normal, and you can get through it.
Think of the current conditions as a pressure cooker test to quicken the journey to becoming cash flow positive, profitable and financially prudent – all of which will put your business in good stead when times are good or bad.
Shift your focus to extending your runway
Startups can no longer rely on being able to raise capital every 12 or 18 months. Capital markets have tightened due to the economic uncertainty. Now that it’s harder to raise capital, startups should turn their focus to extending their runway to make cash last longer. This is essential, as if you run out of cash there aren’t as many options to source capital to fill the gap, and your startup will no longer be able to operate.
Create a plan B strategy
Once you’ve shifted your focus towards extending your runway, your business strategy will need to change. Startups will need to create an alternative plan in light of these unfavourable conditions, which will prepare for different scenarios. With many startups originally planning to raise capital or to reinvest everything back into the business, creating a plan B may be essential to avoid running out of cash.
Consider, how long your runway is going to last should X, Y or Z occur? What scenarios may your startup face? What happens if revenue remains as is, declines or grows? Is customer behaviour likely to change, and how will this impact your numbers? You should look closely at your startup’s numbers and form strategies which will prepare you for what the future holds to avoid any surprises.
Restructure your team
Startups will need to consider if they should reduce headcount and restructure the team. Although this can be a tough process, it can also be a critical one to improve cash flow and profitability, as labour costs can be quite high. In turn, this will help you to extend your runway. Restructuring your team and reducing headcount can also be a useful exercise in terms of strategically bringing your business back on track and starting fresh. For example, maybe your team is not as streamlined as it could be, or maybe there are people in your startup who do not fit culturally, or are not performing as expected. Keep in mind that it’s a careful balance between keeping labour costs as low as possible and sacrificing the skills, talent and knowledge which help your startup run successfully.
Optimise costs
Startups should review and reduce their spending to avoid dipping too much into their cash reserves. Consider whether you can sign a new office lease, or encourage staff to occasionally work from home to reduce energy and internet costs. Also consider renegotiating contracts with suppliers and whether there are any other non-essential costs which can be cut or reduced.
Outsource your CFO
To avoid the major costs of hiring a CFO and finance team, startups should consider outsourcing their CFO. This means that an experienced third-party will take on the role that an internal CFO would, for a fraction of the cost. An outsourced CFO will use their extensive experience to reveal and take advantage of financial opportunities, while tackling any financial challenges for your startup, helping you extend your runway. There is flexibility with utilising an outsourced CFO, as you will only pay for what you need, allowing for you to scale up and down as necessary and stay within budget.
Need help building financial resilience into your startup? Keeping Company has worked with hundreds of high-growth startups to manage costs, secure profitability and extend their runway. Contact us today.
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For all media enquires please contact Tracy Miller, CMO, Keeping Company 0414 898 452.
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.