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How to Downsize Your Business For a Stronger Bottom Line

If you’re looking for a way to make your business more profitable in the face of challenging circumstances, you might find the answer hidden somewhere in the middle of a downsizing initiative. The question is, where do you start?

When Should You Downsize?

Downsizing is often looked at as a big, bad monster – a last resort when all else is failing – but this isn’t necessarily true. While some businesses do turn to downsizing when they’re in financial trouble, downsizing can also be a strategic move to gain a competitive advantage.

Here are a couple of instances when downsizing makes sense within this context.

  • Periods of uncertainty. When the larger economy shifts and there’s turbulence in the marketplace, companies can proactively downsize as a way of insulating the company’s core assets from risk. Consolidating payroll is one of the fastest ways to cut costs and protect the bottom line.
  • Obvious opportunity to save. Sometimes it has nothing to do with the larger marketplace and everything to do with your own company. If a new technology emerges that can replace an entire department of five employees and promise 80 percent in savings, downsizing is a no-brainer.

The interesting thing is that we’re currently in a marketplace where both of these factors are present. Not only is the economy teetering on the edge of uncertainty, but the rise of automation and software is making it possible to streamline many of the mundane and time-consuming tasks that have typically required large fiscal investments from businesses. Downsizing could give your business a chance to leapfrog the competition.

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4 Tips for Downsizing the Right Way

While downsizing may be a smart move, you can’t take a lazy, shotgun approach. You must be laser-focused and precise in your planning and execution. Here are some tips:

1. Follow the Rules

First things first, make sure you’re following the rules and legal requirements when downsizing. Depending on your location, industry, and company-specific details (like whether your employees are unionized or not), there are specific steps you’ll be required to follow. This may include:

  • Required severance packages
  • Standardized selection criteria for who is let go
  • Proof that lay-offs have to be made
  • Procedural requirements
  • Appeals procedures

A failure to meet rules and requirements could land you in hot water. This is why we recommend seeking the help of an employment lawyer before initiating a downsizing event.

2. Leverage Software and Automation

One of the best cases for downsizing involves the use of software to replace costly manual tasks that used to require human labor. An example would be using fleet maintenance software to make your fleet less reliant on manual monitoring. This allows you to (a) downsize the department, and (b) support your most important employees by letting them focus on more critical tasks.

Another great example is something like accounting or invoicing. There are plenty of cloud tools and applications on the market that make it possible to automate 90 percent of these finance tasks. This saves time and money, while also increasing accuracy.

3. Outsource When Possible

Downsizing isn’t always about automating. Sometimes the best move is to downsize by letting full-time employees go so that you can outsource the work to freelancers or agencies that cost less.

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Thanks to a booming freelance marketplace, it’s now possible to hire part-time freelancers to handle the same duties that a full-time salaried employee would have handled, but for a fraction of the cost. (The cost difference typically comes from the fact that you don’t have to offer benefits, provide office space, or cover payroll taxes.)

4. Instill Confidence in Your Core Team

Downsizing can be tough on your employees. The last thing you want is for your core employees – the ones you’ve kept on the payroll – to feel like their stability with the company is in question. This is why we recommend being open and transparent with your communication. Explain why you had to let certain employees go and cast a vision for what you want the future of the company to look like. Reassure remaining employees that they’re part of this vision.

Adding it All Up

Downsizing is never easy. It requires more than calculators and balance sheets to get right. There’s a huge emotional component to it as well. (After all, you’re dealing with your employees’ livelihoods.)

As you approach downsizing, remember that things aren’t always black and white. Take the time to make the right decisions.