Most of small business fail because of a number of things; and premature scaling, which is having a bigger workforce and more resources than necessary, is one of the major contributing factors to failure of these small startups. Ideally, growth of workforce and resources in a new business should be gradual, in order to ensure minimal management responsibilities and maximum attention on product or service improvement.
As such, small businesses with bigger workforce and more resources than they can manage effectively without sacrificing other business development issues such as customer outreach and product development; should consider downsizing. Here are 6 reasons for small business to downsize:
1. Economic Issues
Occasionally, a small business may be significantly affected by economic issues, which in many cases is out of their control. Economic problems mostly affects both sales and production processes of business, which are the major income drive of any business. Consequently, it is advisable for small business to downsize on things like workforce, production of goods, and acquisition of resources to a manageable size when economy becomes an issue.
2. Poor Results
Any business that is starting up always has its own goals to achieve within a given time frame. On the contrary, some business may experience difficulty meeting their set goals because of different problems they are facing. In such cases, it is advisable to evaluate the major cause of the poor performance, whether workforce, production or sales; and decide which department needs to be downsized for effective business performance and good result.
3. Contract Overflow
Small business dealing in contract business may get too much tender or contracts than they can handle within the time needed. It is advisable to cut down on contracts a business takes so that they are not overwhelmed by work that they cannot provide.
4. Legal Challenges
There are a number of business laws that governs how business should be done either locally or internationally. Small businesses may find themselves on the wrong side of these laws, especially the ones that have different branches in different regions. As a results, this may lead to closing down some branches that do not adhere to the set business laws to avoid legal problems.
5. Areas of doing Business versus available Resources
Ideally, any business whether small or large will want to concentrate available resources in a wider geographical region as possible to maximize profit. This is only possible when there are enough resources to do so: If the available resources are not enough to cover some regions that are considered customer base, it advisable to close down some geographical regions and concentrate on a smaller region and satisfy those regions fully.
6. Changes to the Business Plan
Small businesses that are just starting and are not established may need to change their core business plan. These changes may require fewer workforce, less production, or extensive marketing than in the initial plan. Consequently, this may lead to downsizing on different department of the business to cut down unnecessary expenses.