There are going to be some changes to the world post-COVID-19. Some of these changes will be temporary while others will be permanent. So, it is important to reframe how we evaluate our businesses in order to ensure we adapt and continue to remain relevant in the future. We need to have the guts to go out and do things differently, avoiding complacency, and improving our business’ staying power.
So, the best way to shift into this mindset is to start thinking like a start-up. Think about what works and doesn’t, looking for how we can do better. However, before you begin reviewing everything it is important to understand how to think like a start-up monetarily. To help, here are the financial aspects you should be looking at and reviewing.
How much cash do you have available?
You need to know how much cash your business has on hand. Not cash owed by debtors, but cash you physically have available to use. This could be in the bank, already committed by a shareholder, or simply available to you.
The amount of cash you have on hand can help determine what you can directly invest in transforming your business for the post-COVID world.
What is your monthly recurring revenue?
A good thing to look at when thinking like a start-up is your monthly recurring revenue (MRR). Normally in business, we look at annual recurring revenue. But looking at your MRR can give you a more accurate picture of how your business is performing and where you need to pivot. Look at software like Xero to get real-time updates on your business’ performance.
What is your cash burn rate?
Have a look and see if you are spending more than you are earning each month. If you are consistently, it is time to begin thinking differently. Knowing your burn rate allows you to see how your business is doing each month, and whether you need to focus on improving your burn rate.
How long is your cash runway?
How much longer until your cash on hand runs out due to your burn rate? Your cash runaway is determined by your cash on hand divided by your burn rate. Understanding this gives you insight into your profitability so you can focus on monitoring overspending. If you see your runaway getting shorter then you know you have to do more to cut spending or generate more revenue.
Will you have to bootstrap for a while?
If things are getting tight you may have to look for creative or resourceful options to use the funds you have to push your business through. Sometimes you may have to tip in some of your own money until you build your business back up. This is common for start-ups, but taking these tight finances further will require you to be creative, resourceful, and knowledgeable. Ensure that you talk to your accountant or bookkeeper and do some market research to find the best choices for your business.
Changing your mindset during tough times can be a challenge but it is vital to future successes. It can be especially hard to go back to a start-up mindset after a long time running your business. The trick is to be honest with yourself about your business, use the resources and people you have around you to get the best out of the situation, and push your business through. If you need help getting through this tough time talk to our team of friendly bookkeepers. We can help your business find its financial feet again.