Think Before Cutting Employees

July 21, 2022

As soon as profits begin to slide, the first thing that comes to mind for many business owners, managers, and CEOs is to lay off employees. The philosophy, obviously, is that reducing employees is a quick fix to the bottom line. It must be remembered, however, that employees are the heart and soul of any business. They are the lifeline that connects customers and a business. Without committed employees, real efficiency and progress cannot be achieved.

So, rather than immediately cutting staff, owners and managers should try the following:

Study the Numbers

Not everyone is an accountant and, certainly, not everyone wants to be an accountant, but understanding the numbers and financial statements of a business are essential elements that can make a business stronger. Although a leader might not understand how to properly analyze the various financial statements, it is imperative to learn this area of the business as much as possible. Understanding where the revenue comes from, what expenses are incurred, and whether the business is on track (or off track) to achieve budgeted objectives will allow leaders to make better operational decisions.

Be Wise with Spending

Some spending is necessary while other spending can be deferred. It might be easy to cut major expense categories by a certain percentage or dollar amount, but individual expenses must be reviewed item by item to make the cost-cutting process as efficient as possible. Rather than having the mindset that certain expenses will be cut forever, a more positive attitude can be that certain expenses are necessary (just maybe not today) and will be added back to the budget in the future. 

Increase Efficiency

Gather the team together, be open with communication, and explain the situation. “We might be going through some tough times but if everyone pitches in, pushes a little more, and works a little harder, there will be a brighter light at the end of the tunnel.” Production can increase regardless of the type of business and a certain amount of waste (that practically every business has) can be eliminated. All of sudden, there is an increase in efficiency, costs are decreasing, and profit increases without laying off employees.

Increase Prices

Businesses do not like raising prices and customers, certainly, don’t like to see prices raised. An increase in inflation causes all costs in a business to increase...cost of goods, utilities, services, labor, etc. For a business to stay at least on par with inflation, it must raise prices (like it or not). This does not mean that prices on every product or service must be raised. Price increases can be on selected items. A business should review what will have the greatest impact on incoming dollars with the least “push-back” from customers. Rather than surprising customers with a price increase, it always good to communicate this with customers and the reasoning of a price increase before it is implemented.

Confidence in Employees

Considering it is far less costly to retain good employees than to recruit and train new employees, businesses must have confidence in their current team. Businesses can demonstrate confidence in employees through continuous training. Employees love to feel empowered by accepting additional responsibilities and increasing their individual skill levels. 

Think Before Cutting Employees

So, a little forethought should be part of a planning process before a decision is made to simply cut employees. Drastic decisions can have drastic consequences, but prudent business decisions can have long-term, positive results. Therefore, think before cutting employees.

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