Summary. Downsizing a small business is difficult, but it might be a necessary step to keep the company solvent and relevant in your industry. Learn what downsizing is and why a company would want to downsize. We also have some tips to make downsizing easier.
If you’re considering downsizing your small business, you’ve probably considered a lot of other options and reluctantly come to this one. Downsizing isn’t easy, no matter what the size of your company is. While downsizing is difficult, it can be the best thing for your business, and the following information can make it easier.
Key Takeaways:
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Downsizing isn’t the same as firing employees, and it can take the form of cutting back staff, equipment, inventory, and more.
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Downsizing is not a step that should be taken lightly, as it can have repercussions and harm team morale.
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There are many different reasons for downsizing.
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Taking steps to keep your staff informed is one of the best ways to approach downsizing.
What Is Downsizing?
It seems like an obvious answer, but downsizing can be more involved than many people understand. To be clear, downsizing is not firing employees. Firing someone is letting an employee go for cause, or to put it bluntly, the individual is not working out with the company for whatever reason. Downsizing is letting one or several employees go without cause but as a way to save money.
Downsizing is usually discussed when talking about letting employees go, but downsizing can also mean closing branches of an office, unloading equipment, or cutting back on production or inventory. In a very broad sense, downsizing is cutting back to save costs.
Why Downsize a Company?
There are different reasons to downsize a company, and each business has to look at its unique situation and make the determination for itself. The following are some very common reasons that businesses decide to downsize.
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Reduce costs and expenses
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Improve return on investment
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Improve efficiency
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Response to market demand
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Pursue outsourcing
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Business merger or acquisition
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Financial recession
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To save the business from bankruptcy or ruin
When to Downsize a Company
Downsizing is usually a last resort, but it doesn’t have to be. It’s a business move that must be considered logically to determine if it’s what’s right for the company. If it appears that downsizing is the right move, extra care and consideration need to be employed because you’re often ending the financial security of your employees – even if it’s just temporary until they find a new job.
Downsizing often has negative implications, so it should not be a step that’s taken lightly. It should also happen in increments, so the company doesn’t cut too much too quickly. It often comes with some negative impacts on company morale, even when it saves a company from bankruptcy.
How to Downsize Your Small Business
You’ve crunched the numbers and considered all of the alternatives, and downsizing is your best solution. How do you go about cutting your workforce? Use these downsizing tips to help.
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Transparency. Keeping secrets during a downsize only breeds fear, contempt, and insecurity. This needs to be a policy that begins at the top and trickles down so everyone feels included and that they know all they can at the time.
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Understanding. While your goal as a business owner is to save the business and save what jobs you can, it’s important that you understand that some of your staff will be devastated by this decision. Being understanding and compassionate is essential.
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Come to your decision with a plan. Make sure that you have a plan for how you will reorganize your company after the downsize happens. This needs to be shared with management and with your employees so everyone sees why downsizing is essential and when you will recover.
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Focus on the positive. Try to keep morale up by emphasizing the future and the benefits that will come out of this move. Do not dwell on those who have gone or the losses your business suffered.
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Make sacrifices for the employees. If you can prove that you’re also cutting back and not just sacrificing employees for profit, you’ll do better when it comes to employee morale. Regular displays of appreciation for the remaining employees don’t have to cost much or anything, and they help bring everyone back together.
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Set expectations. Part of your transparency should be letting employees know how long to expect a reorganization, what is expected of them, and what your company will look like in the future. This eliminates or relieves a lot of insecurity and gives people something to work toward.
Downsizing FAQ
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When do I tell my employees there will be layoffs?
Tell your employees there will be layoffs immediately before you begin layoffs. Telling people too early causes great anxiety. Once you’ve pulled the trigger, though, it’s time to be as transparent as possible so they know what to expect and those people who remain don’t work in fear of more layoffs.
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Is downsizing a good way to deal with a lack of market demand?
Yes, downsizing is a good option if you see a decrease in demand in the market. Layoffs might not be the only option, but this is commonly a reason companies decide to pursue downsizing. It helps cut back on expenses, and fewer people are usually needed to make fewer products.
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How do I maintain good engagement when I have to downsize my company?
Maintaining engagement can be difficult during downsizing; communication and honesty are key components to holding onto trust and supporting the remaining employees. Being compassionate and understanding of their plight is also critical throughout.
As long as you are doing your best to support them, most of your staff will see that this is a difficult time for you as well. It might be that you can’t keep everyone happy, but if you’re trying, they will see that.
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Are there laws that regulate downsizing?
For most small businesses, there aren’t any federal laws to be concerned with when downsizing. If your company has 100 or more employees and you’ll be doing mass layoffs, the Worker Adjustment and Retraining Notification Act (WARN) is one to look into.
References
Author
Kristin Kizer
Kristin Kizer is an award-winning writer, television and documentary producer, and content specialist who has worked on a wide variety of written, broadcast, and electronic publications. A former writer/producer for The Discovery Channel, she is now a freelance writer and delighted to be sharing her talents and time with the wonderful Zippia audience.
