BackTight on cash despite layoffs, cost cuts, startups, SMEs mull shutting down ops
Around 80% startups and SMEs surveyed by LocalCircles said they cut or deferred fixed costs to sustain and operate on thin budgetsSeveral startups, especially in the Internet segment, have resorted to layoffs and salary cuts to keep themselves afloat
PremiumBENGALURU: Startups and small and medium businesses (SMBs) have been cutting marketing spends, human resources and operating costs in the last three months as the coronavirus and ensuing curbs continue to wipe out their revenues.
Even after reducing fixed and operating costs, many small businesses (14%) said they are contemplating shutting down their companies due to the slowdown in business, while 16% said they were unsure of the future and have three-six months of cash runway, according to the latest survey by online community-based social media network, LocalCircles. Around 35% of the businesses surveyed, however, expect growth in business.
Around 80% startups and SMEs surveyed by LocalCircles said they cut or deferred fixed costs to sustain and operate on thin budgets.
The LocalCircles survey sought responses from 28,000 startups, SMEs and entrepreneurs from across the country. These worrying numbers come at a time when several startups, especially in the Internet segment, have resorted to layoffs and salary cuts to keep themselves afloat.
Startups across travel and mobility are the most impacted due to the nationwide lockdown and restrictions on interstate movement. In the last two months, startups including MakeMyTrip, Udaan, Swiggy, Zomato, Lendingkart, Ola, Cure.fit, WeWork India, ShareChat and Uber India, among others, laid off employees.
According to the survey, 30% of the firms said they have only one-three months of cash balance.
Around 12% of the firms said they have less than a month’s worth of cash left, while 38% said they are out of funds already. Another 4% said they have already shut down their business due to a decline in revenues after the lockdown.
Many small businesses and startups also reported a revenue drop of more that 80-90% in the last two months, making it hard for them to sustain their businesses.
LocalCircles conducts monthly surveys on its platform, and the comparison from April to June 2020 shows that the fraction of startups and SMBs out of funds has risen from 27% to 42%, which paints a worrisome picture.
Many startups and small companies have been trying to raise funds in the last few months but have not been able to do so due to the reduced interest of investors and liquidity drying up.
A comparison between April and June shows that the fraction of startups and SMEs seeing growth in the next six months has risen from 13% to 35%, indicating that some startups have found new revenue streams. Still, a majority of the startups and SMBs surveyed expect to scale down or shut down in the next si months indicating a difficult path to normalcy.
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