Laying off staff is something no business owner enjoys doing. Unfortunately, sometimes they’re unavoidable. Reducing your workforce can help when labor costs are a significant line item on your income statement. Layoffs can potentially help restore some stability if your business begins to become unsteady.

However, it’s important to note there are many costs associated with staff reductions. Severance payments, legal expenses, reduced productivity, reputational risk, and future expenses of hiring and training new employees are all costs that need to be considered when contemplating a layoff. You may even want to consider other avenues to avoid such risk and reduce or delay the need for layoffs.

Last-Resort Thinking

Think of layoffs as your company’s last resort. For example, is it possible to first trim some perks? Eliminating unnecessary travel, executive seminars, holiday parties, and staff retreats may provide some budgetary breathing room. Provide managers with reasonable cost-cutting targets and completion dates. At that point, you can reassess your company’s situation.

Pruning employee benefits can also yield cost savings. Ask your HR staff to scrutinize benefit use and think about discontinuing the least popular offerings. Just be careful about removing benefit options. Your business may be subject to certain contract terms and other legal obligations, particularly when it comes to retirement and health care plans. Consult knowledgeable benefits experts and your attorney as needed.

You might also need more drastic cost-cutting measures, such as temporarily furloughing workers or implementing a four-day work week. Or you may be able to trim salaries. Would a 5% across-the-board wage reduction solve your business’ financial troubles? Could you offer stock options to compensate and incentivize affected employees? Just make sure that any sacrifices you mandate are shared. For instance, if you lower hourly wages and sales commission rates, your senior executives should also forgo any bonuses.

Beyond Workers

Be sure to look beyond employees for solutions. You might be able to restructure your business to enhance performance or change your business form to improve tax efficiency. And if you haven’t already, discontinue:

• Unprofitable products and services
• Obsolete production lines
• Duplicative efforts

 
You may be able to sell equipment you no longer use or nonstrategic assets such as real estate. Also consider divesting or spinning off any noncore business lines.

Act Strategically

If, despite all your best efforts, staff reductions appear inevitable, act strategically. Take advantage of any attrition and look at employees who may be willing to take early retirement. To protect your company publicly, try consolidating back-office operations before terminating customer-facing employees.

We know how heart-wrenching such decisions can be. So, contact us to review your financial situation and suggest ways to enhance cash flow, manage budgets, deal with debt, and restore your business to good health without taking any unnecessary actions.