What are the best cash management strategies for startups during a sudden decrease in demand?

Partially I support the above mentioned explanation. Yes burn rate should be reduced but negotiations in salaries or lay off is not a good decision. It can create an adverse effect in the economy which has a turnaround effect on the business itself. So the business has to identify the discretionary spending and cut them off for the sake of better cash management.

Bien rate should always be monitored as this they to to growth. Belief that another round will happen or an order will be received is a dreams some dreams come true, but other may become your nightmare. Cash is king!

Generally the spends that are cut the first are marketing and branding related as they appear "discretionary" though they are not...But the startup needs to live to fight another day and these expenses are easy and quick to cut.

I would agree with reviewing your burn rate but with one exemption. Marketing and advertising tends to be one of the first expenses to cancel. Whilst it may seem counter intuitive, this may very well make the cash position worse. There are some other things you can do such as making sure you use payment terms for your suppliers, don't just immediately pay. Make sure your collecting payments on your invoices and go after those that are 30 days or older. Don't let these become bad debts on your books.

Before reducing burn rate it is important to understand why there has been a negative impact on demand. Is it temporary or permanent? Can it be rectified and corrected? Taking action without understanding this can be hugely detrimental to the business if the wrong actions are taken. Understand this and estimate the ongoing impact and time frame before slashing costs indiscriminately.

Don't forget the simple MacDonalds approach. Upsell "do you want the large meal", increase the number of sale items "want fries with that", increase the number of times your customers or clients purchase from you during the year.

Investors and other funders need to be kept especially close at these times. As I suggested above, it is vital to understand if the situation is temporary or longer term as this will dictate the best approach. Temporary cash crises can be resolved if it can be shown that they are indeed temporary and an indication of when things will return to normal. If it is longer term and more permanent it can be difficult to secure funding. There needs to be an effective plan and someone leading it and keeping key stakeholders up to date.

Airbnb’s response to the COVID-19 crisis exemplifies effective runway extension. Confronted with plummeting demand, they raised $2 billion and took stringent cost-cutting measures, including reducing marketing expenses and workforce. Additionally, Airbnb adapted its business model to emphasize local and long-term stays, aligning with the shifting market trends. This multifaceted strategy enabled Airbnb to not only weather the downturn but also emerge in a position strong enough for a successful IPO in 2020.

Xero, QBs etc have modules that will forward project cash flows. These can be rather accurate as long we you use your accounting system correctly. Enter in your supplier invoices with payment dates for example. The accounting systems will work cash flow taking into account receipting of payments on your invoices, payment timeframe to your suppliers, GST and PAYGW on wages etc.

This should be a daily occurrence anyway for all business not just those in crisis. All businesses should have a 13 week rolling cash flow showing all income and payments. Variances should be fully understood and the impact on cash going forward updated.

John D. Rockefeller's advice, "Do not be afraid to give up the good to go for the great," wryly reflects the challenge of managing a startup's cash flow. It's a juggling act, where every dollar counts, and strategic decision-making determines which expenses stay and which go. In this scenario, analyzing financial statements becomes a detective's task, uncovering where each dollar is spent. Forecasting, too, is crucial, as it helps predict financial trajectories. This balancing act is not just about good financial management; it's about aiming for greatness, as Rockefeller might suggest.

Netflix's transition from DVD rentals to a subscription-based streaming model exemplifies strategic pricing optimization. Adapting their pricing over time, they aligned with changing market conditions and consumer preferences, notably introducing tiered pricing to cater to diverse customer segments. This case underscores for startups the importance of dynamic pricing strategies. Regularly assessing and adjusting prices in response to market feedback and operational costs is crucial. Netflix’s approach demonstrates how effective pricing can drive both customer satisfaction and business sustainability.

It's a must to calculate Accounts Receivable Days and Accounts Payable Days. Then, negotiate with both parts in order to get AR days < AP days. So, you cash flow structure will be stronger.

Looking back over the last decade, in my experience every startup has gone through the tough funding cycle(s) when it had to make tough calls. Its very difficult to plan for it but one can be prepared for this by having the priorities clear. I have always advised to make the funding rounds large and then focus on operations even though it leads to more dilution. Cutting down burn is not always the best option as it cuts down the growth also.