3 signs it’s time to downsize your small business staff

It may be time to downsize.

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Key Point

• You may hesitate to let go of an employee you have hired.
• There’s no point in keeping employees if you can’t afford or need them.
• Consider your cash flow situation, the amount of business you’re getting, and your staff workload to determine if you need to scale back.

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For small businesses, you often have to do everything yourself. That means developing a marketing strategy, following up with vendors, taking inventory, and doing all the hiring.

The latter can be particularly challenging. If you’re running a small business, it’s essential to hire employees you can trust. Because they can become an integral part of the team.

However, it may be time to cut back on staff. It’s a tough thing to face, especially when you’re spending hours interviewing, training, and working with employees to improve their performance. But if these signs are true, it may be time to cut headcount.

1. Money is tight

These days, many small businesses are under pressure due to inflation. If rising costs are eating into your profits and your costs are slashing, it may be time to do what you can to cut costs. Also, if you can’t lower your inventory, utility bills, or rent costs, you may need to consider reducing your labor costs.

Sure, if money is an issue and you’re hesitant to lay off staff, see if anyone is taking pay cuts. But that likely won’t work, and you may have to give up taking some employees off payroll.

2. Business slowdown

Maybe you hired a lot of new employees when business was booming and your regular team couldn’t keep up. If business has slowed since then, you can probably go back to your previous setup – and let go of the people you hired to pitch when things were busier.

3. There are certain employees who are not busy enough

Perhaps your business is doing well from a cash flow standpoint and has a steady stream of customers to serve. But if there are certain people on your payroll who don’t seem to be busy, eliminating those roles will benefit you. However, you may continue to pay for 40 hours of work each week. It’s just not a good deal.

How to size down

Losing a job can be a big blow. If you need to cut headcount, approach it in a caring way.

For one thing, avoid sending workers during or just before the holiday season if possible. If anything, aim to wait until the New Year so your employees can celebrate the holidays without the stress of unemployment on their minds.

Second, notify workers that they will be dismissed, if possible. It may not be necessary, but if you can give your employees lead time, it will give them the opportunity to find new jobs so that there is no gap in their income.

Finally, if you’re downsizing your workforce because they’re not at fault, offer to be a reference for future work. It may help them get hired sooner.

Letting go of an employee is not easy. But done the right way, it can soften the blow for all involved.