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Should You Downsize Your Business?

A Slow Economy or Unchecked Rapid Growth Can Hurt Your Business

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If your business is in financial trouble, then yes, you should consider downsizing. If a business fails, all employees will eventually lose their jobs. The purpose of downsizing is to help a business survive and as difficult as it may be to downsize, even the largest of companies routinely resort to this strategy to regain more solid financial footing.

In business terms downsizing (which is sometimes also called “downscaling”) means reducing the number of employees on the payroll. This is accomplished through job cuts or layoffs. Some business experts further distinguish downsizing as specifically cutting jobs intended to be permanent cuts and consider “layoffs” temporary, where employees may eventually be rehired.

But no matter what you call it, letting employees go is a difficult business decision, and often emotionally hard on employers – and on employees.

Downsizing Because Your Business Grew Too Fast

There are many reasons a business may need to downsize. Obviously, a difficult economy is a big factor in why many businesses are now suffering, but a business that grows too rapidly may also need to downsize.

Rapid growth, without a solid business plan to handle growth, can spell disaster. An increase in revenue and sales also means an increase in expenses - including the need to hire new employees or obtain larger space for your business. If these costs are left uncontrolled and revenues decline, a business will soon encounter financial troubles even in the best of economies.

Keep Your Business' Growth In Check

To prepare your business for rapid growth, be sure that you update your business plan once a year and conduct feasibility studies to map out potential logistical and financial problems.

  • Market Feasibility: How to prepare a description of your industry, current market, anticipated future market potential, competition, sales projections, potential buyers, etc.

  • Technical Feasibility: Details how you will deliver a product or service (i.e., materials, labor, transportation, where your business will be located, technology needed, etc.).

  • Financial Feasibility: Projects how much start-up capital is needed, sources of capital, returns on investment, etc.

  • Organizational Feasibility: Defines the legal and corporate structure of the business (may also include professional background information about the founders and what skills they can contribute to the business).

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