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7 Ways to Scale Down Your Business

Deciding to scale your business down can feel like a failure, but sometimes it’s the best way forward with the potential for future growth. Scaling your business too fast initially can leave you with financial, staffing, production and quality issues. Downsizing temporarily lets you get those issues under control. The following downsizing strategies can help you with the process of scaling down your business.

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1. Reduce staffing

Staffing can consume a large amount of your business budget, but your employees are essential to running your business. Balancing your staffing needs with your budget helps you while scaling back your business. If you’re cutting back on business activities, you’ll naturally need fewer employees.

To save on staffing costs, you might decide not to refill positions that are vacated due to employee attrition. Choosing to fill those positions with part-time employees can give you the coverage you need without the expense of hiring another full-time employee. You might also give current full-time employees the option to go part-time instead of losing their jobs completely.

Before deciding on layoffs, review any legal requirements for your state. This might include creating standardized selection criteria for layoffs, giving notice or providing minimum severance packages.

Criteria that you might use include:

  • Seniority
  • Performance reviews
  • Specific experience necessary for the company
  • Employees who opt for early retirement
  • Employees who volunteer to leave

2. Move to a smaller space

If your current facility is larger than you need, moving to a smaller space can significantly decrease your overhead cost. Cutting staff or reducing inventory levels can reduce your space needs and allow you to move to a smaller space. If you aren’t cutting staff, consider transitioning to a partially or fully remote business to eliminate commercial office space.

3. Eliminate money-draining areas

Look at every area of your business to determine which ones help drive revenue and which ones don’t. Compare the costs of those areas or activities with the revenue they generate to determine whether they’re beneficial or if they’re an easy area to cut.

For example, let’s say you have a retail business with a thriving e-commerce site and a small brick-and-mortar retail shop. If the physical retail shop gets very little foot traffic and costs you more in staffing than it generates, closing it and focusing on your online store could be a profitable way to scale back.

Maybe you own a craft store and pay someone to teach classes in the store. If class enrollment is so low that it doesn’t justify paying the instructor, this could be a money-draining area to cut.

Another example is a restaurant that also has a food truck. Selling the truck and focusing on the restaurant could be a way to scale back if the food truck isn’t profitable by the time you pay for gas, staff, maintenance and fees to park it at events.

4. Cut spending and expenses

Scaling back on your spending and reducing unnecessary business expenses can help you improve your bottom line or get closer to a profit. Look at all of your current expenses to identify things you can eliminate without hurting production or decreasing customer service.

Determine whether there’s a cheaper option for certain expenses. You might look for cheaper suppliers or outsource certain tasks instead of doing them yourself. Perhaps you splurged on high-end equipment or office furnishings you don’t really need. Trading those items in for cheaper versions could help.

5. Scale back production

If keeping up with production is an issue, consider scaling back in that area. This might mean you have to turn customers away. Quality often suffers when you can’t keep up with current demands, which can hurt your business in the long run. Producing a consistently high-quality product keeps customers coming back.

6. Focus on a certain niche

Some businesses try to cast a wide net to reach more customers. It’s a logical strategy, but it often backfires. A more effective approach is focusing on a specific niche or your most profitable products or services. This establishes you as an expert in those things and encourages people to come back for those proven goods and services.

7. Pause new projects

In your excitement as an entrepreneur, it’s tempting to start lots of new projects and try a little of everything. This approach can spread your resources too thin and suck a lot of extra money that you need to go to your core business activities.

If you have new projects in the works, consider pausing them for now. Even if you’ve already put time and resources into those projects, putting them on hold indefinitely can help you free up cash for now.

Business downsizing FAQs

How do you know if it’s time to downsize?

While downsizing is a very personal decision based on your business circumstances, some factors could be red flags. Consistently decreasing profits can be an indicator that it’s time to rethink your current business structure and possibly scale back. Growing too fast can make it difficult to maintain profitability. Inconsistent or decreasing product quality can also happen when you grow too quickly. It’s tempting to ramp up production to keep up with demand, but that rapid increase can create quality issues. You might also have difficulty keeping up with production numbers, either due to staffing or equipment issues. Scaling back lets you return to your high quality standards, and then you can plan to increase productivity in a slow, controlled way to maintain quality. Some business owners decide to scale back if they can’t manage the larger structure or want to go back to a smaller, more intimate setting.

What are the benefits of scaling back?

Saving money to make your company more profitable or to overcome a deficit is often the main motivation and benefit for downsizing. Some benefits of downsizing include:

  • Reduced operating costs
  • Ability to restructure to strengthen business
  • Improved production quality
  • Becoming an expert in a more specialized area of business
  • Higher efficiency

What are the drawbacks of downsizing

Cutting back can come with negative effects, especially on your workforce. Consider the following potential drawbacks before scaling back:

  • Lower staff morale or fear
  • Increased employee turnover
  • Lost productivity or momentum
  • Negative impression to the public
  • Legal issues if you don’t follow labor laws
  • Difficulty meeting needs with a smaller staff
  • No guarantee it will correct issues

How do you decide which downsizing strategies to use?

Start with a thorough analysis of your current business and the issues that made you decide to downsize. Identify your reason for downsizing, such as business finances or production issues. Look at every department and area of your business to determine where you’re wasting money and which areas are most profitable. This helps guide your downsizing plans. For example, if you have multiple employees doing the same job and not enough work to keep them all busy, eliminating some of those positions might be the best downsizing strategy. Incorporating multiple strategies, such as reducing staff, moving to a smaller location and cutting expenses, often has the biggest effect and can help improve your business situation.

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