When your business is growing, the last thing you want to think about is how you might have to reduce staff or downsize in order to stay profitable. However, as many businesses have discovered in recent years, sometimes it’s a necessary step if you want to keep growing.

There are many reasons why a company might need to scale back in response to market changes. A decline in demand for your services could be caused by new technology that makes your offering less relevant. Alternatively, if the services you offer aren’t scalable, then perhaps growth is just not an option for your business at this time.

Whether it’s because of changing market conditions or because you’ve simply outgrown the space and staff required to run your business as efficiently as possible, downsizing can be an effective strategy in almost any situation where scaling back is a better long-term solution than continuing with the same level of success.

Understand the reasons for downsizing

The most important step in planning a downsizing initiative is understanding why it’s necessary. There are many reasons why a company might choose to downsize, including:

• A decline in demand for your services could be caused by new technology that makes your offering less relevant.
• A drop in sales makes it impossible to keep your current business model afloat. If demand for your services drops or increases less quickly than you need it to in order to sustain your growth, you may need to scale back in order to remain profitable.
• The services you offer aren’t scalable. If your product or service is too time-consuming or complex to manage at a high volume, growth may not be an option for your business.

Don’t make the mistake of cutting staff indiscriminately

When it comes to downsizing, there are no one-size-fits-all solutions. Every company is different, and every situation requires a unique response. It’s important to remember that there are no bad employees: just bad fits.

If you are considering a reduction in staff numbers, it’s vital that you do not cut your staff indiscriminately. You should always be disciplined in your reductions and aim to let go of those employees who don’t fit with your company culture.

Even if your company is failing and you’re looking at a total shutdown, you can still be smart about which employees you let go. For example, if your sales team is responsible for an unacceptably low volume of sales, you may want to let go of your sales team but keep your account management and customer service teams, who are essential to your survival as a company but not responsible for your poor performance.

Plan your layoff-process from the beginning

Even if you’re absolutely certain that the best course of action is to downsize the company, you should still plan a careful layoff process that treats your employees fairly. It’s important to remember that layoffs are rarely a decision that a company takes lightly.

People are often surprised to learn just how often companies plan for a layoff far in advance. It’s not unusual for a company to start planning a layoff even before it begins to see a drop in growth or profit. It’s understandable that you might not want to be transparent about your decision to downsize.

After all, you’re probably afraid of losing customers or even staff members. However, you should treat the decision to downsize like any other major decision. And do it with the help of a strategic business plan.

Layoffs are usually just the beginning of a larger restructuring process

As we’ve already discussed, each downsizing situation is different. And each business will respond to a reduction in staff in a different way. However, in most cases, a reduction in staff is just the beginning of a larger restructuring process.

There are many ways that you could choose to restructure your company in response to a reduction in staff numbers. You could switch to a virtual team. You could reduce your services and try to keep your clients and reduce your overhead. Or you could change the type of clients you serve.

It’s important to remember that downsizing is never a permanent solution. It’s usually a temporary solution that allows you to scale back your business while you implement changes that will let you grow again in the future.

Try to retain motivated and skilled employees

If you’re going to downsize, you should try to retain as many motivated and skilled employees as possible.

You can do this by creating a voluntary layoff program, or VLTP, which gives you the flexibility to let go of employees who have skills that are no longer needed but who aren’t responsible for the poor performance that led to the need for downsizing.

A VLTP gives employees who would like to stay with the company but who aren’t important to the short-term success of the business the opportunity to leave on good terms and find a new job.

It’s also a good idea to offer severance packages to employees who are let go. Especially if they’ve been with the company for a long time, have contributed to your success, and/or are being let go for reasons that aren’t directly attributable to their performance.

Conclusion

Businesses can withstand almost any challenge, but during those times of uncertainty, it’s important to remain flexible and adaptable.

If you find yourself needing to downsize, don’t panic: you’re not alone. It’s a decision that many companies have to make under challenging circumstances.

The most important thing is to be prepared to make the process as smooth as possible. Begin by understanding why the need to downsize exists. And then, with your staff in mind, create a plan to guide everyone through it.