How Startups Can Budget in the Time of Corona

Like everyone else, the challenge is to flatten the curve and stay united. But first of all do not panic. Instead, start with some basic questions

Personal Note

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COVID-19 caught us in the middle of our next round. Our investment expectations turned to ashes. But before descending into a state of despair, we figured out that there are things that allowed us to calm down, take a deep breath and make a very feasible plan. What follows is how we believe any startup can tackle this challenge with a positive outlook.

The Essentials:

Resources – How much cash do you have in reserve? I mean unrestricted money – without promises, without the need for collection, but relying on liquid funds.

Expenses – What expenses absolutely that cannot be eliminated? Other expenses that can probably be reduced or deferred.

Financing – What currently known options are there for a loan from the banking system or government agencies?

Checkpoints – How far to the next checkpoint? The rule of thumb should be: as the process escalates, the time to the next checkpoint must be reduced to address a relevant reality. A checkpoint too far in the future can lead to wasteful activity that is unrelated to reality!

Activity – What activity is planned until the next checkpoint? Map out what you have planned; see how it can be amended without too much pain.

Personnel – What is the size of your team and how essential are its members? This is the most difficult and sensitive area, but it has to be addressed. Hopefully you’ll be able to keep everybody employed from home…that’s the goal. And remember, it’s not the ONLY thing. In other words, just slashing staff in panic won’t guarantee your survival. But there is another side to this rough coin:

Assume your development plans actually need MORE team members, or to replace any who may have had to drop out. You can employ people who are on unpaid vacation at much lower rates, and the government unemployment fund can make up the balance, giving them a reasonable income. A win-win all round.

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This does not mean that it’s any easier; it just means that we have a better sense of what it takes to survive and who needs to be there to see it through. I’m not necessarily suggesting that a “wasteland” should not be dispensed with. Startups by their nature, are business dealing with so many different facets: some things will just no longer be necessary. That’s the unpleasant truth of it.

But maybe it’s also time to take a deep breath and see how we can adapt, change and re-innovate so that somehow everyone can be kept together, with a deep meaning of togetherness and solidarity which will help drive you into the next phase of your business.

Now that we have some direction for activity to the next checkpoint, we know what’s required. and can begin to build the budget: activity versus cash flow. Here’s what we suggest:

Revenue – Don’t trust it!

Personally, I compute a budget assuming that all my future earnings are not met. Collection=Zero! How would I deal with that? All activity must be focused on increasing the value of investments, bringing money to the company, the most basic need there is. This is not the time to be shy but it is also not the time to be overly aggressive. It’s a time to be responsive and innovative.

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Focus only on generating pilots, and on active, vigorous searches for municipal and government programs. It should be noted that only some government programs will generate immediate funds – many are built as a partial return on actual expenditure. Going to regional programs like the EU can only be an option when there are resources to support a process that will last close to a year! Also, note that the Chief Scientist partially covers the cost of consultants’ fees that can help with the submission process.

In companies that are unable to generate income, all activity should focus on funding – government programs and even investors looking for opportunities. Remember that social networks, most notably LinkedIn, are free and are a great platform for messaging. Write, think, respond…most importantly, stay in motion.

Nothing going? Demonstrate serious leadership; at the forthcoming checkpoint make tough but fair decisions! Remember that this period will be over and in the end you will need fuel to re-start!

Investment – Keep pushing!

Carry out and show your activity. Demonstrate leadership, focus, initiative and camaraderie. A good time to refresh and update your material and not be cut off. Make sure all your material shows a relationship to the current period, but in a positive way.

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Budget – How long?

Here too, as in life, it is not a radio or television show; slogans and waving hands will not really do the job. As in our real life, it’s a process. The process is built on the fact that we have a defined ultimate goal and below it are sub-goals that change over time.

Setting the budget duration can look something like this:

Suppose we now have NIS500,000 available and until the next checkpoint in a month, we must remain with NIS420,000 at checkout. This is a very clear goal. It describes investing in a selected activity for a certain amount of time. It also sets an amount that must be kept in mind at the end of the episode.

What is the amount you need to keep? I would suggest a 4-to-6-month cash flow rule. The principle says that if there is an escalation, activity will be reduced anyway and with it the expenses that will allow us to flatten the curve for about nine months maximum.

To conclude this chapter, plan a budget according to the checkpoints, leaves four to six months burn, and prepare for a total of nine months of limited activity.

Budget – Carrying you forward

Having an action plan (until the forthcoming review) makes it easier to set the minimum required to meet the selected tasks. It is important to pay attention to tasks that are progressing at a pace that match the nearest checkpoint. Do not start a task that will only begin to yield within two months when the checkpoint is set for one month!

The emphasis shifts from increasing value to securing cash flow. The eyes now focus on the ability to bring home money somehow. In the end. and in my humble opinion, the ability of a startup company to prove that it is acclimatizing and adaptable, adds a great deal to its worth and chances of success, even on sunny days.

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Checkpoints – Dare to read reality accurately

Brave criticism allows us to lead a more just and conscious life. It may also be unpleasant but especially necessary during cloudy periods.

We have set a checkpoint – excellent, it must be prepared in advance, materials collected and developed for a fair and proper discussion between the senior partners and at the end, to issue clear commands that have the ability to change the plan of action.

Very important – a checkpoint must be flexible when needed. It makes no sense to wait for a review point a week away when everyone already agrees that conditions have changed and direction needs to be changed immediately! On the other hand, there are very specific and concrete channels that can go beyond the checkpoint!

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Routine – The operational and very human part of the budget

The routines forced upon us now have created a new reality and a different environment demanding togetherness and unity.

A routine of daily conversations combined with family activities at home can mentally support the entire team and allow every individual to continue to be part of the company but at the same time remain part of their personal family in a balanced way.

Successfully.

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About Brightmerge

Brightmerge Ltd., a Tel Aviv-based startup, provides an enterprise SaaS platform based on proprietary machine learning and big data decision-making solution to automate and optimize the design, development, build and operation of energy microgrid systems. The company is already generating revenue working with a number of multi-billion dollar global companies in the real estate, IT integration and energy industries.

Elkana Pressler, Executive VP

Business Development

elkana@brightmerge.com

www.brightmerge.com

Brightmerge Ltd.

34th Floor, Midtown Tower

144 Menachem Begin Str.

Tel Aviv-Yafo, 6492102 ISRAEL