Small businesses facing financial difficulties often lay off staff as a quick way to reduce overhead expenses. There are certainly times when this can't be avoided, but before taking the drastic measure of layoffs, consider these alternative cost-cutting measures.

Give thoughtful consideration to how much layoffs will cost your company in the long run. On top of paying severance, alienating employees, and risking litigation, the morale hit may hurt productivity among survivors. In addition, when business improves, you’ll be stuck with the cost of recruiting and training new employees.

1. Unpaid furloughs

Unpaid furloughs are not an ideal option, either. They can come with some of the same fallout as that described above, but if feasible, they are an alternative to actual layoffs. In this scenario, you may require employees to take time off, unpaid, while continuing benefits.

The Balance Careers1 explains, "The employees generally have either scheduled time off or call-back rights and expectations. Examples of furloughs include closing a business for two weeks, reducing employee time on the job to three weeks a month instead of four, and asking employees to take two days a month off without pay. Other employees have been put on furloughs indefinitely."

2. Voluntary layoffs / Early retirement

Another option is to float the idea of voluntary layoffs among employees. In this scenario, you offer employees incentives to voluntarily end their employment. You may offer a handsome severance package or early retirement if employees are eligible. This option can get costly up front, but ultimately, you will save money on payroll in the long term while not having to force anybody out of their job. This may also not hit company morale as hard as traditional layoffs would. Employees who are not as desperate for work as others might be willing to take you up on the offer.

3. Pay cuts

If your industry or the local economy is in a down cycle, a pay cut is likely to be viewed as a tolerable alternative to job loss by employees who are already feeling uneasy about their futures. Communicate openly that this is in lieu of layoffs and, if realistic, emphasize that this may only be temporary until things turn around.

4. Remote work

Many small businesses moved to a temporary work-from-home setup to comply with social distancing guidelines durting the COVID-19 crisis. Most planned to return to their regular location, but it may be worthwhile to investigate the option of permanently shifting to a remote work setup. You can save the money you'd spend on rent and other expenses associated with operating from an office.

5. Find an alternate location

Another way to save on rent is to find a different, cheaper location. If you own your space, you may also look at refinancing options to get your monthly payment lowered, which can help with your cash flow.

6. Negotiate lower rates

Negotiate with those you pay on a regular basis to try to get lower rates or flexibility on payments. This may include lenders and credit card issuers, vendors, and suppliers. While you may not be able to get as much as you'd like, it doesn't hurt to start discussions that can potentially free up some cash.

7. Cut unneeded expenses

Be sure to go through all of your expenses, both recurring and otherwise, and identify costs that can be eliminated outright or reduced by choosing a less expensive alternative. If you use paid versions of software you could be getting for free, make the change. Look at alternate vendors who can offer you better deals. Cut out any extraneous spending that didn't seem like a big deal in the past, but now clearly needs to be eliminated.

8. Consolidate high-interest debt

Finally, find a way to consolidate your high-interest debt. Nevada State Bank has a handy calculator tool to help you determine what to do.  If it looks like the right move, get in touch with the bank, and a representative will help you lower your monthly payments if applicable.

Before deciding on the last resort of layoffs, explore alternatives that may be able to keep your business afloat until your current situation improves.



The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank. Nevada State Bank is a division of Zions Bancorporation, N.A. Member FDIC