3 Signs It’s Time to Downsize Your Small Business Workforce

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It may be time to lay off workers.

key point

  • After working so hard to hire employees, you may be hesitant to let them go.
  • There’s no point in keeping employees if you can’t afford them or don’t need them.
  • Consider your cash flow situation, the amount of business you’re getting, and the workload of your employees to determine if you need to make layoffs.

When you own a small business, you usually do everything. That means developing a marketing strategy, following up with suppliers, taking inventory and doing all the hiring.

The latter can be a particularly challenging thing to do. When you own a small business, it is essential that you hire trustworthy employees as they will most likely become an integral part of the team.

But sometimes layoffs may be necessary. This can be a tough thing to deal with, especially when you spend a lot of time personally interviewing employees, training them, and working with them to help them improve their performance. But if these signs apply to you, it might be time to lay off workers.

1. Money is tight

Today, many small businesses are being squeezed by inflation. If higher costs are eating into your margins to the point that they are being slashed, it may be time to do what you can to cut costs. If you can’t reduce the cost of inventory, utilities or rent, then you may have to consider reducing your payroll costs.

Granted, if money is an issue and you’re hesitant to fire employees, you could try to see if anyone is willing to take a pay cut. Chances are, though, that won’t pan out, so you may have to resign and take some employees off your payroll.

2. Business slowdown

Maybe you hired a new group of employees at a time when business was booming and your regular team couldn’t keep up. If business slows down after that, then you might be able to go back to your old setup – and fire the people you hired when things get busier.

3. You Have Specific Employees Not Keeping Them Busy Enough

Perhaps from a cash flow standpoint, your business is doing just fine, and you have a steady stream of customers to serve. But if there are specific people on your payroll that never seem to be busy enough, it’s worth eliminating those roles. Otherwise, you may continue to be paid 40 hours a week when you’re really only getting 20 hours from those employees. It’s not a great deal.

How to Compassionately Downsize

Losing a job can be a major blow. If you must lay off staff, do so in a compassionate manner.

On the one hand, if you can, don’t let employees go during or before the holidays. If anything, the goal is to wait until New Years so your employees can celebrate the holidays without the stress of being out of work.

Second, if possible, let the employee know they will be fired. While you may not need to do this, if you are able to give your employees some time to prepare, they will stand a chance of finding a new job so they don’t experience a pay gap.

Finally, provide a reference for future work if you are laying off employees through no fault of their own. This can help them get hired faster.

Firing employees is not easy. But if you do it the right way, it softens the blow for everyone involved.

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