Many people think downsizing usually happens when business is falling or due to economic hard times. But did you know that it’s the quickest way to cut expenses? Also, it can be the only solution to improve your business efficiency. You don’t have to close your business – downsize for financial security, especially when it’s the only solution to keeping your bottom line healthy.
Downsizing is a huge decision you can’t sweep under the carpet. It involves intense scaling back on operations to help the business stay afloat. Even so, when you downsize for financial security, there’s no guarantee that the process will help you sail through your financial woes. Still, it might just be your last play on the table, and doing it right is the first step to your business restoration.
This article will discuss what you need to consider before downsizing for financial security. Also, keep reading to learn the correct steps to cut your business’ costs. Let’s start!
What to Consider Before Downsizing a Business
Downsizing a business isn’t an easy task. However, with many businesses falling down due to economic hard times or the aftermath of the pandemic, scaling down has become the only sensible solution to staying afloat. Before you downsize for financial security, consider the following.
Consider All Options
There are a few cost-saving alternatives to scaling down, such as early retirement offers, temporary stipend reductions, and voluntary executive pay cuts. Such approaches can help you temporarily reduce overheads, especially when unsure of the length of the economic crisis or consistent loss-making.
Insurance coverage may offer protection, especially when forced to shut down your business temporarily due to a physical disaster. In such a case, your business income and extra expense policies protect you from such perils.
You’ll also be protected against failed loan payments and unnecessary taxes from business interruption or damage caused by a covered risk, such as a tornado or fire. Also, temporary moving costs when you need a short-term business location are included in the cover.
Who to Let Go
A sudden adverse economic impact forces you to downsize for financial security. In this case, laying off employees is unavoidable and should be handled carefully. You’ll need to know who to let go and who to keep, as a simple mistake could be disastrous, but how?
A few key workers keep the business running, and laying them off may result in decreased sales and a substantial loss of revenue. For this reason, such employees handling crucial tasks must be maintained at all costs.
Although downsizing is done to save the business from closure, letting go of people in charge of essential business operations can be suicidal. You’ll need to let go of workers whose responsibilities can be done by others.
However, when the situation forces you to let go of such vital element outsourcing the essential services is the only way to keep your business running. Also, you may be forced to train other employees in the long run to handle such essentials, which can be time-consuming and tedious.
Before making any job cuts, you’ll need to consult the management team to identify easily dispensable employees with minimum responsibilities. Also, you must ensure that their tasks can be shared with the remaining staff with minimum workflow disruptions.
Set Clear Business Objectives
When you downsize for financial security, it’s best not to view the move as a permanent failure but as a temporary setback. Doing so will give you the right mindset to push through hard business times and the strength needed to start over. You’ll need to know what’s next after downsizing.
Before downsizing, you’ll need to create a business strategy on how operations will be done onwards. It would help you set objectives of what you intend your business to have achieved in six months or a year. Also, long-term goals to the tune of five years or ten years and beyond helps to keep focus and the vision alive to reach future milestones.
In addition, it’s vital to develop a reactive strategy to deal with any sudden change or uncertainty in the market, meaning revolutionalizing your business strategy to accommodate any unforeseen negative challenges. For example, suppose you worry about running out of a certain commodity or product. In this case, building supply stores would be the right move to stock it up in case of expected product scarcity.
It’s advisable always to consider your business’s long-term survival and progression. Doing so will always keep you busy strategizing on your business survival regardless of external negative forces such as inflation, pandemic, and economic downturn. Also, saving money to help cushion any eventuality helps. You can also liquidate a few assets that aren’t in use; for instance, getting cash for junk cars is beneficial.
Steps to Scale Down Your Business for Financial Security
When your business isn’t performing as expected, it makes sense to downsize for financial security. Although such a move can make you feel like a failure, sometimes downsizing is the only solution to save your ailing business from huge losses. However, if you intend to scale down, you’ll need to do it correctly, as a simple mistake can mean business closure.
Scaling down? Do it the right way by following these steps:-
1. Reduce Staffing
Staffing can grab the lion’s share of your business budget. Still, employees can also be the resource that keeps your business running. For this reason, balancing your staffing needs to liaise with your budget is essential. If you decide to cut down on business operations, it makes sense to retain fewer employees.
If you want to save on staffing costs significantly, you may decide not to rehire for vacant positions due to employee attrition. Opting for part-time employees to fill such positions can help you get the much-needed services without incurring inflated expenses in hiring a full-time employee.
To reduce business overheads, you may also give your full-time staff the option to work part-time instead of completely losing their jobs. Such a move will help employees keep their jobs while helping the business save a few bucks that can be used to cushion essentials.
If you have no option but to lay off employees, in this case, before doing so, its advisable to familiarize yourself with any legal requirements recommended by your state, which may include the creation of a standardized selection process for layoffs, providing severance packages, and giving of timely notices.
The most commonly used layoff criteria include employees who leave voluntarily or go for early retirement, seniority, or performance reviews. However, when downsizing your staff, it’s essential to ensure that all the vital responsibilities have someone to attend to them to avoid any business interruption.
2. Move to a Smaller Space
The general idea of scaling down is to save money to keep your business afloat at any cost. Using movers and, most preferably, local moving companies (offering pocket-friendly moving and storage service) to shift from a larger, expensive space to a smaller, cheaper area is a pro move to downsize for financial security.
Reducing inventory levels or cutting down on staff reduces space, allowing you to move to a much smaller area. However, while moving out, you’ll need to ensure you spend less on rent. For this reason, it will be wise to deal with a landlord with cheaper property management services, as cutting costs is your primary reason for downsizing.
Also, it helps to relocate to a remote area for affordable rental management service. Surprisingly, you be amazed by how much space you can pay for less money away from the city. Typically, properties with closer proximity to the city tend to be expensive, meaning the more remote you go, the lesser the pay for a bigger space.
While moving out, you may also trade your elite office furnishings and equipment that you don’t need for cheaper and usable versions. Your finances need to be healthy to sustain your business, and any idea that can bring in cash inflow is a good idea, but it shouldn’t affect production.
Moving into a new space can be exciting. Still, you’ll need to ensure that the space is safe for everyone. For instance, you’ll need to ensure that your new premises don’t have a leaking roof, and when unsure about the condition of your garage door, call a technician to do a garage door repair checkup.
3. Cut Your Spending and Expenses
Cutting your spending and expenses should be a priority, especially if you want to downsize for financial security. Your business’s bottom line needs to be healthy; for this to happen, you’ll need to minimize overheads while substantially increasing your revenue stream to make a profit.
You’ll need to be very careful when minimizing expenses, and your primary goal should be to cut off unnecessary expenditures without decreasing customer service or hurting any production. For this to happen, it will be wise to search for affordable suppliers or opt for outsourcing services that require more workforce. For example, outsourcing packaging contractors can significantly reduce expenses.
It’s also advisable to review all your expenses thoroughly. Doing so will help you to identify unnecessary costs – if any, that won’t affect any business operation after cutting it. Additionally, the value of your product shouldn’t deteriorate in any way.
4. Eliminate Money Draining Loopholes
It’s essential to do a thorough business background check to determine the areas that help drive revenue and those that don’t. Also, it would help if you compared the expenses of such areas with the revenue they help generate. By doing so, you’ll be able to know whether they’re beneficial or are areas that should be cut out.
For example, supposing you own a brick and motor retail store and a thriving e-commerce platform, when the physical store drives in less traffic, and has overwhelming expenses such as staffing and rent, in this case, it makes sense to close the physical shop and focus on your successful e-commerce website.
5. Pause New Projects
In your excitement as a business owner, you might be tempted to start on new projects; it’s also thrilling to touch on a little of everything. Doing so can suck your extra income and spread your resources thinly. In this case, you may be forced to divert resources that would have otherwise been useful to fund your major core businesses.
If you have new projects and need to downsize for financial security, you’ll need to pause them for some time until you’re in a better position to commence them financially. Doing so will help you focus resources where needed and free up cash for relevant business operations.
6. Scale Back Production
When keeping up with the production is a huge challenge, you must consider scaling down in that area. Although you may not be able to keep up with the demand, meaning that you have to turn a few customers away, often, quality suffers when trying to keep up with orders.
Customers come back due to good quality products and services, and any downgrade can make you lose clients forever, which is an expensive affair in the long run. For this reason, you’ll need to focus more on quality than quantity.
Suppose your business isn’t performing well, and your bottom line isn’t healthy due to a pandemic, war impacts, or economic downturn. In that case, you’ll need to downsize for financial security. While most people may consider downsizing a sign of business failure, it might be the only solution to prevent your business from closure.
However, downsizing isn’t a straightforward process, and if you’re considering it, you’ll require tons of advice on how to do it correctly. A simple mistake can cost your business, so you’ll need to investigate what’s essential for your business and what’s expendable.