How do you know when it is time to downsize your workforce? That’s not always an easy question for business owners to answer. In some cases, you can just see that the future isn’t bright for your industry. If you don’t lay off a few people, then you’ll never have the resources that you need to regroup and find new ways to reach profitability. Most times, though, you can take a reasoned approach to make a decision that will benefit your company.
Image by doug88888 via Flickr
Image by doug88888 via Flickr
Examine Your Budget
If you haven’t established a budget for your business, then that is the very first step. Hopefully, you already know how much money you can budget for various expenses. If you are spending more money that your budget allows, then you might need to make some cuts.
Note that there are occasions when it is OK to go over your budget a bit. The recent recession, for instance, isn’t expected to last forever. If your business has any savings reserved for emergencies, then now might be the right time to dip into that account. If you just don’t have the reserve funds, though, then you might need to let some people go.
Use Financial Projections
Ask your CFO or accountant to give you projections for the upcoming year. This will give you a good idea of how much work your company will have during those months. The projections aren’t perfect, but they will give you a basic idea of what you can expect.
If you find that the near future presents some real challenges for your business, then you might need to redirect cash flow by downsizing your workforce.
