Should You Downsize Your Business? Signs it’s Time to Do So

empty office
Share this post on these platforms

To downsize your business sounds like a terrible idea. Entrepreneurs typically chase growth and prosperity, so to scale back seems like a sign of failure. But surprisingly, downsizing a business has fair benefits, too.

Think about it as downsizing your home, or your life. When we let life’s luxuries become the center of our lives, we tend to lose sight of what’s truly important. We also get strayed far from our goals. As such, we face trials, from our relationships to our finances. Even if we can afford to live luxuriously, sometimes, we go over the top and spend money we don’t really have. As a result, we end up in debt.

Not only that, but we can go bankrupt and lose our homes and other assets. And the same fate can meet a business if its owner is careless in managing its finances.

But instead of closing down the business, it can be downsized. If people can move to tiny homes and live abundantly, a business can also scale back and enjoy greater profits. Hence, downsizing isn’t automatically a sign of failure. Instead, it’s a way of showing you can learn from your mistakes and make a fresh start.

So is it time to downsize your business? See if these signs apply to you:

1. The Business is Financially Unstable

Of course, the most obvious reason to consider downsizing is the financial instability of your business. If paying all its debts can cause it to go bankrupt, just downsize instead of filing for bankruptcy right away. The latter may help you reduce your debts, but downsizing could have long-term benefits.

But in some cases, it’s safer to file for bankruptcy first. After all, bankruptcy won’t stop you from doing business altogether. You may even re-open your company when its finances stabilize again. And this time, you can operate as a smaller company, so you’ve technically filed for bankruptcy and downsized.

In this scenario, think of downsizing as avoiding mortgage foreclosure. An experienced foreclosure attorney will help you relieve your debt by recommending a Chapter 13 bankruptcy. This allows you to stay in your home while making the rest of your mortgage payments for three to five years. Your business can do the same, settling its debts while dealing with bankruptcy. This gives you a better momentum for bouncing back. General Motors actually filed for bankruptcy following the financial crisis of 2008. They downsized in 2009, but you wouldn’t be able to tell from the way they’re still thriving now.

downsizing business

2. You’re Losing Productivity

Growing your team helps increase productivity, but in time, an overabundance of employees can bring back productivity issues. When a company grows too big, repetition occurs. This means too many people doing the same job. It exhausts your finances yet doesn’t result in optimum productivity.

When you downsize, you can get rid of a sizable portion of your workforce, and notice greater productivity and efficiency as a result. However, cutting your workforce may be fraught with controversy. It could lead to lawsuits, which would no doubt damage your reputation. Hence, think this through carefully, and ensure that you won’t be terminating someone’s contract wrongfully.

3. You’re Not Meeting Your Sustainability Goals

It’s part of a company’s corporate social responsibility to care for the environment. And the easiest way to fulfill that responsibility is to reduce costs. Downsizing will allow you to do just that. Cutting down your workforce lets you use fewer resources, like energy. Lower energy bills may seem like it has no impact, but it’s the opposite. Companies are responsible for most of the pollutants contaminating the earth. Hence, by significantly reducing your carbon footprint, you’re making a big difference.

4. Your Work-life Balance is Constantly Disrupted

One benefit of downsizing is its ability to promote better work-life balance. Remember, an entrepreneur’s goal shouldn’t just be to make money. Instead, it’s to achieve a healthy work-life balance, so that they wouldn’t have to spend all their time working.

The hustle mentality might’ve helped many people succeed, but ultimately, it’s not the money or job titles that matter. It’s the time in your hands. If you have a lot of money but no free time, then your success would feel like a cage. So if your business is causing your success to feel that way, then it’s probably time to scale back. It would help your employees achieve better work-life balance, too.

A business doesn’t have to be big to be successful. If growing your business costs you your health and mental well-being, you’re doing yourself and your company more harm than good. So scrap the mentality that a big company means a successful company. You can be a home-based one yet rich in culture, creativity, diversity, and of course, profit.

Scroll to Top