What to Know About Downsizing Your Business

Aug 23, 2023 5:00:00 AM / by Payday HCM

Have you come to the conclusion that downsizing is necessary for your business to succeed? These types of decisions are not easy but sometimes unavoidable. You may already have a plan to downsize but you are hesitant because of the impact it will have on your employees. This is a valid concern but that doesn’t mean you should let it stop you from making necessary changes.

PaydayHCM has been helping clients navigate difficult situations like downsizing for nearly 40 years. We know that downsizing can be stressful for all involved. The process is never easy but it can be optimized to create the best possible experience given the circumstances.

In this article, we address the ways that you can ensure downsizing goes as smoothly as possible. We also share how you can help your employees navigate this stressful time. The foundation for successful changes consists of planning, honesty, and communication.



Downsizing is a challenging process that can impact the morale of your employees and the reputation of your business. It is something that should be approached thoughtfully. But what are the actual steps involved when planning to downsize?

Here is a breakdown of the steps to take when planning to downsize:

  1. Assess Your Business – evaluate the current state of your business and use that to pinpoint the reasons for downsizing. This evaluation should include financial analysis, performance metrics, and industry market trends.
  2. Set Clear Objectives – the biggest mistake you can make is to put in place a downsize without a clear goal. It puts you at risk of making significant changes and still ending up right where you started.
  3. Review Staffing Needs – assess the roles and responsibilities within your organization. Identify positions that need to be consolidated or eliminated. Consider alternatives to layoffs, such as early retirement, attrition, or voluntary separation packages.
  4. Develop a Communication Strategy – plan your messaging to share with your organization. You must exercise transparency and empathy for your employees. along with providing a clear rationale for the decision.
  5. Consider Legality and Ethics – consult with legal advisors to ensure that the downsizing follows labor laws and regulations. You will want to make sure that you pay attention to the legalities surrounding severance packages and notice periods

Instead, define specific and measurable goals for the downsizing process. Examples include:

  • reducing operating costs
  • improving efficiency
  • focusing on core products/services.



There is enough material on this one section alone to create pages but we will break it down into simple bullet points. These will guide you toward successful communication during a difficult time. Consider this the crux of your downsizing plan. The success of what you do and how it is perceived hinges on your communication.

  • Plan and write your communications in advance – prepare your communication strategy ahead of time to ensure a clear message. Be sure to involve key team members. They can include human resources and senior management. Be open with them so they help in the planning process.
  • Be honest and transparent – putting off announcements related to downsizing, or withholding information is detrimental to morale and to the reputation of your organization. Employees will appreciate you being upfront and honest with them, even if it’s bad news.
  • Choose an Appropriate Time and Setting – we’ve all heard horror stories of employees finding out about layoffs via social media or a last-minute phone call. Don’t let yourself fall into that unfortunate category. When and where you deliver the news will have a significant impact on the reaction to the news.

Hold one on one meetings in person. A virtual meeting is best if a remote workforce prevents you from in-person meetings. If at all possible, delivering the news in person is the absolute best way to go.

  • Empathy is Essential for a Positive Outcome – begin addressing employees and others by acknowledging the difficult situation. Explain the reasons for downsizing but always be empathetic when discussing the situation.

Communicate the support and resources that are available to help the affected employees. This could include severance packages, job placement, or access to career training.

  • You Must Address Staff Concerns – there will be many questions following your announcement. Prepare yourself ahead of time by thinking about questions you might be asked and what your response will be. Honesty is key but you also want to be prepared. You may not have answers to some questions, but you should be honest about that too. Assure staff that you will keep the lines of communication open during the process.

                Common questions might include:

  • Will there be more layoffs?
  • What support is available for those affected?
  • How will this impact my workload?


Be Prepared and Be Empathetic

Downsizing is not easy but it can be an opportunity to strengthen your employees and refocus your organization. Remember the key factors of extensive planning and honest communication. Be empathetic and open with your employees while also respecting the privacy of others. You will also need to follow up with your employees and provide updates as you go through the process.

PaydayHCM is here to help with your business challenges. We know how to approach these situations with empathy and tact. We’ve been solving business challenges for nearly 40 years, and we have experts in human resources that can guide you to a successful outcome.

Do you currently have human resources services available to your business? Have you been getting by without it? HR can be an invaluable resource when handling challenges like downsizing for example. Here are four more reasons why you need HR services.

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