By Jennifer L’Estrange, Managing Director
Red Clover Human Resource Consulting
The choice to downsize is never easy and has obvious impacts on a company and its employees. We wanted to share our insight on our approach to restructuring and downsizing projects.
When discussing downsizing and restructuring, we will start with the assumption you have already reviewed your full P&L and identified ways to conserve cash through cost cutting measures and acceleration of revenue realization.
Here are the key questions we recommend you consider:
- What is your current burn rate? If revenue stops, how long will it be before you are unable to meet your payroll obligations?
- What work is on the schedule for the next four weeks? And then the next 12 weeks? What are your minimum workforce requirements to meet this demand?
- What does your sales pipeline look like? How long is your sales cycle? What changes do you expect in the next six months?
Once you have answered these questions, ask yourself what is the minimum workforce needed to sustain operations – and to keep the talent that is instrumental to your business?
In the current climate, the business priority is survival. Your decisions need to be solely based on the premise that cutting salary costs is the best — and perhaps only option — for keeping the lights on and making sure that there’s a business for people to return to.
Identifying the key people your business needs to operate is the first step. Consider the criteria that you will use to identify your essential employees. Ensure it is based on their job tasks and that you take an even-handed approach to avoid claims of discrimination.
An example of criteria you may use are the following:
- Employees who are key to generating and realizing revenue.
- Employees who are essential for financial management and overall operation.
- Employees who are subject matter experts and who constitute the key leaders crucial in managing a crisis.
Once you’ve made the difficult decision to downsize, there are some additional questions the company needs to consider.
What Is Your Organizational Goal?
Is the goal to preserve most, if not all, of the current team or organization, or do you need to retain employees with specific skills in key job roles? You should ask and answer this question for each department or function. If the goal is to preserve the integrity of the team, you might consider a reduction in working hours. For hourly employees, a change in work schedule is required; for salaried, exempt employees, you will need to either reclassify or furlough.
What Are Your Profit Requirements?
Knowing that your profitability will go down with flat headcount (no layoffs) and a reduction in work time, does this negative outweigh the cost of going back to market to recruit and onboard new employees later? Some small businesses can afford a substantial drop in profit or even lost money in the short term to protect critical operations or to prepare for an influx of work that will come shortly after the period of disruption. Others will need to identify the few key roles that are needed to manage efficiently and re-allocate work to those employees who are part of the retained organization.
What Can You Afford to Do?
We always encourage business owners to take a hard look at their own situation before deciding to cut the workforce. Recognize that cutting jobs, especially in the current environment, creates substantial hardship for the employees who lose their livelihood.
If you can afford to keep people on in the short term, and take the personal hit to do so, then do it. This may mean owners making the decision to reduce or even not take a draw. Cost-saving measures should apply equally, where possible. Evaluate week by week and adjust accordingly.
Regardless of your decisions, consistent communication is key as you begin a restructuring project. Be honest and clear with information, providing updates as quickly as possible and ensuring the messaging is consistent. We recommend establishing a communication plan to support these efforts. Be mindful of the tone of your message, especially in written communication. It is more easily misinterpreted. If your organization has well-established core values, frame your communication plans within the context of those values.
Make sure that you are scheduling regular updates on what’s happening with the business, your teams and checking in with your people. If you can’t tell them exactly what is going to happen, tell them when you will be providing more information. Also, keep telling them “the when” until you know “the what.” Transparency is key – especially in times of uncertainty.
Maintain regular meeting rhythms for efficiency, culture, and employee well-being. If you typically hold a daily huddle with your team, maintain that practice over a conference call. If you meet weekly, continue to do so – and consider increasing the frequency of team meetings while working remotely.
Most importantly, stay the course. Learn more about Red Clover and how we can support your organization.
BMK invites articles that may be of interest to our clients, colleagues, and friends during these trying times. BMK is not affiliated with Red Clover and it does not endorse the content or views expressed by Red Clover. Should you have questions or comments concerning the article, we suggest that you contact the Red Clover team directly.
The article is not and cannot be construed as legal advice.