Cash is King!

Sep 14, 2020 2:25 pm


3 Insights

1)    Stay away from cash burn models

One of the lessons most entrepreneurs learned from Covid crisis that the cash-burn model of business is most risky model.

Over last few years, number of companies have adapted a business model that burns cash at humongous rate, with the goal of cornering a market share. Some prominent names that one may recall include Oyo, Amazon India, Flipkart, and WeWork.

The ‘growth at all costs’ mindset has now changed. The entrepreneurs must focus on building sustainable and profitable businesses, rather than burn cash that does not belong to them.

How do you ensure you have right business model for the future? A few tips.

1)     Understand relationship between price, revenue, and costs in your business

2)     Focus on verticals, segments and products that bring in cash with less cash outgo

3)     Implement cash budgeting system that supports cash management goals

4)     Borrow or get equity from investors for growth, not for funding cash losses

5)     Analyze velocity of cash in your business and use it to your advantage

Here’s a link to access recording of CFO Axis – Yagna Entrepreneur Success webinar on “Managing Cash in Covid Crisis”

2)    Convert Capex to Opex for conserving cash in business

One of the goals of the CFOs this year should be to convert as much of Capex (Capital Expenditure) to Opex (Operating Expenditure) as possible. Covid has caused a huge financial distress to most businesses and the CEOs will push to conserve cash while investing for the future.

The CFOs will therefore prioritize investments that have lower payback period though they may score relatively lower using other criteria. If you come up with a Software as a Service (SaaS) equivalent model for your products and services, your chances of selling those will improve considerably.

You can also carefully re-evaluate all your costs to see how you can get rid of costs that do not add value that the customer is willing to pay for. And of course, use marginal pricing to get those large orders that will keep your business running. After all you need to cover your fixed costs like lease, permanent employee salaries and fixed component of other costs.

This time will be challenging as well as rewarding for the CFOs, with an opportunity to be very creative. Because when the going gets tough, the tough get going.

3)    Use special offers to generate quick cash

As consumers we always have an attraction for "special offer". The special offers offer a lot of flexibility to the business, and help generate quickly, in time of need.

Special offer prices can be made available in various ways throughout the lifecycle of the product.

Here are 10 tips on how you can design special offers for your products:

1)     Offers for a specific customer segment, e.g., members only

2)     Offers for a specific period, e.g., first week of October

3)     Offers for a specific festival, e.g., Diwali season

4)     Offers at specific event, e.g., industry exhibition

5)     Offers for sales through a specific channel partner, e.g., e-commerce portal, own website

6)     Offers for a specific product version, e.g., Kindle unlimited e-book

7)     Offers for a specific payment mode, e.g., payment via a specific bank’s credit card

8)     Offers in a specific retail outlet, e.g., outlets in a specific city

9)     Offers to specific customer referrals, e.g., redirected from partner website

10)  Offer one-time product license at discounted price, e.g., life-time access with no recurring costs

Here’s a short post on how one-time licensing can be leveraged to bring in quick cash