Five Tips for Downsizing a Small Business

Business.com / Finances / Last Modified: February 22, 2017

Downsizing is never a fun task for any business, but here are five tips to make it easier on everyone involved—especially you.

Downsizing was one of my first duties after I bought MyCorp. I knew the company had gotten too big, and the only way we were going to be able to continue growing would be if I turned it back into the lean start-up it once was. I had to lay people off, and that isn't so easy when you run a small business.

The decision to downsize is never taken lightly, and I’ve spoken to plenty of business owners faced with the reality of losing their company if they didn’t cut staff. Small business owners work closely with their teams, making layoffs a lot harder. Through my own experience and helping others, I’ve found that it’s a good idea to do the following during the layoff process.

1. Make a Plan

As morbid as it may sound, you need to have a plan before you start downsizing. Think about who you want to cut, and then look at any objective markers of their performance. How did they do in past reviews? How much experience do they have? When were they hired? How big is their department? Just remember that you want to stay balanced – don’t let everyone in a department go, or your business will start to feel lopsided.

It’s best to do layoffs in one fell-swoop, or you’ll kill office morale. 

Related Article: How to Avoid Layoffs in Your Business

2. Be as Honest as You Can

As I mentioned, you’ve likely worked with the people you’re considering letting go. They’ll have questions, and it’s important to let them know why they are being cut. But you also don’t want to cause mass panic— if you tell them that the business is at the end of its rope, everyone left in the office will freak out. Know what you are going to say when your staff asks you about the state of the company. You shouldn't outright lie, but it is possible to be honest without causing hysteria.

3. Listen and Remain Objective

In my experience, people will rarely just say ‘okay’ and then clean out their desk. They might even get a little combative. This is why it was so important to plan, and identify the reasons why they are being let go.

It’s hard to argue against objective metrics of success—if a salesperson isn’t selling, there is obviously a problem. Objective is the key word. Base your decisions on their performance, rather than their personality. You can’t let them leave with the belief that they were let go because you didn’t like them.

Related Article: Effective Ways to Prepare for Business Uncertainty

4. Stay Organized

You have responsibilities as an employer to terminated employees. You have to make sure they get their final paycheck, they cash in any accrued vacation time, they know about their rights to retirement benefits and, if you have more than twenty employees, they get their COBRA paperwork

5. Take a Hit as Well

Finally, make sure these cuts impact you in some way. At my company, executive pay couldn’t stay as high as it had been under the previous corporate owner, so I took a pay-cut until we started to turn things around. This is going to be a really tumultuous time for your office, and you shouldn’t try and make it seem as though you weren’t affected by the decision to downsize.

Layoffs never get easy, regardless of how many people are being let go. But if you approach terminations with compassion and tact, the process will be much smoother. After it’s all over, talk to the remaining staff, outline what you want to do, and then get started turning the company around. If you planned everything properly, your business should still work the way it had before, just on a smaller level. Then, when business picks up, you can consider expanding again.

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