powered by globallinker

Precursor to fund raise: Assessment of business environment and unit economics

Precursor to fund raise: Assessment of business environment and unit economics

Finance & Accounting

Mathew Isac

Mathew Isac

1 Jun 2020, 16:07 — 4 min read

COVID-19 pandemic has forced all organisations to face an alien business environment. Drying cashflows and a bleak possibility of raising cash complicate the already problematic situation. If businesses want to survive, they need funds and now!

Here are my recommendations to beat this existential crisis.

 

Survival of the quickest

To survive these times, businesses must access critical internal and external factors and use this understanding to formulate their plans. Consider:

  1. Target segments: How much is your target segment affected?  How long will it take for this target segment to start buying again?

  2. Lead conversion: How much time and effort will be required in converting the deal, and what is the quantum of business you expect from the deal?

  3. Customer behaviour: Which of your customers are buying? Which of your customers are already out of business or will soon be out of business?

  4. Check your company’s cash burn: How long will your cash reserves support the cash burn without your customers buying?

Consider removing all non-essential spending and look at creating a runway for 18-24 months continuously, i.e., based on the zero-based budgeting, you should ensure that the cash burn is consistently reduced.

You may want to start the reduction at the CXO levels, especially if you are investor-funded companies, thus increasing the skin in the game. The variable pay at the CXO level can be the right place to start.

 

It is critical to understand the companies that the investors have invested in and be prepared for comparisons that they may make. The result of these comparisons will determine the investors’ interests.

Everything revolves around Unit Economics

Relook your Life Time Value (LTV) to Customer Acquisition Cost (CAC) ratio if your business is modelled on subscription revenue. Most VCs agree that a ratio of 3:1 is ideal.

It is also equally important to measure the cost of retaining the customer along with the cost of acquisition.

 

Consider reducing the pay-back period. The pay-back period defines the time by when will the customer acquisition cost be paid back through the revenue. This is the first activity that needs to be considered while re-writing the business plan. Address this on priority before any incremental and non-essential indirect costs occur.

 

If your business is based on transactional revenue, project-based revenue, and services revenue, you need to pay attention to reducing the cost of acquisition. You should also work on incremental efficiency month on month using innovative methods of acquiring customers, reduce direct feet on street, and consider increasing channels that are remunerated through variable pay.

Re-model your business by focusing on those activities which can provide a high recurring revenue and hence reduce the cost of acquisition significantly.

We would love to hear from you!

Do reach out to us on this link or write to Mathew Isac if you have any questions or comments on the article. 

 

Image source: shutterstock.com

To explore business opportunities, link with me by clicking on the 'Connect' button on my eBiz Card.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views, official policy or position of GlobalLinker.

Posted by

Mathew Isac

Expert Advisor and Consultant for SMEs on the platform, specially to address queries on the impact of COVID-19 on business owners in India With over 28 years experience in...

Recommended articles for you

Got an inspiring story?
Get featured on SME inspirations

Already a member?

Log in

Other articles written by Mathew Isac

Building resilience

9 Apr 2020, 15:34

View All

ICICI Bank BizCircle GlobalLinker - GET THE BIG BUSINESS ADVANTAGE

Visit mobile site