6 Reasons For Downsizing
It happens every day – companies lay off employees and/or close partial or whole sections of their business, or downsize. The closure can be anything from the layoff of a few employees, to closing an office or location, or even closing an entire geographical area down completely. I can assure you these decisions are never made lightly (or shouldn’t be at any rate). There are a few reasons a company might go this route, but all reasons relate to the financial impact the area or location has on the bottom line of the business.
1. Lower than Expected Results
Some business locations just don’t produce the results the business plan expects. Usually, a business plans extensively when opening a new business location, office, or area. The company expects a certain number of sales or a certain financial gain from any area or location, and if the location or office does not produce those expected results the business may choose to shut it down. This is especially true when it is a retail setting.
2. Economic Downturn
Sometimes a business faces a decline in sales or production because of the economy. If the company produces plastic containers (i.e. the kind you get your fast food in), for example, and the company has a reduced number of orders because of a slow economy in the fast food industry, the plastics company will be hurt from this. This could initiate layoffs or even the closing of a location if the hit is big enough on the company.
3. Concentrate Resources on Other Areas
A company only has so many resources that it can spread out among its different geographical areas. At times it doesn’t make sense to spread resources out so far that there aren’t enough resources for all areas. These are the times when a company may choose to close one or more geographical area(s) to allow resources to be concentrated more heavily in other areas.
4. Contract Changes
If a business relies on a contract with a larger company for its revenue (i.e. the company is a ‘middle-man’ between a larger company and consumers or other smaller businesses), then changes to the contract can affect the company’s financial status. If contract negotiations don’t go as planned, or some concessions had to be made to save the company, this can result in a small or large number of layoffs and possibly in shutting down geographical areas to compensate for revenue that was lost in the contract.
5. Changes to the Core Business
Like people, businesses go through change. These changes can be small and seem insignificant, and some can be large and extremely significant. If the changes result in an overhaul of the business, services, products, and brand, then the company may (usually) decide to overhaul the employees and areas it is in based on target customers for the new brand.
6. Legal Challenges
There are tons of laws for businesses that differ from state to state, and even city to city. These can be challenging to keep up with, especially for companies that do business in multiple states. This is why it is good to have a good business attorney that is knowledgeable in the areas the company does business in. However, if the company experiences legal problems it could result in layoffs, offices/locations being shut down, and ultimately the whole company going out of business in some cases.
There are many other reasons why a company would lay off employees, close geographical areas, and even close the business down, but these are the reasons I have seen/experienced throughout the years. At the end of the day it is about the financial success of the business. If the business doesn’t make money, then there is no reason to keep it running. As I said before, this is always a difficult decision for anyone in the position to make these decisions, but a necessary part of doing business.