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The Impact of Company Layoffs on Your Business

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There comes a time in every small business owner’s life when he or she is forced to make some really hard decisions in order to keep the business’s doors open.

Businesses can’t run without cash. When money’s tight, small business owners need to figure out what they can do to ultimately either raise their revenues or slash their cash outflows.

There are many ways that this can be done.

If they haven’t done so in a while, business owners could decide to raise their prices. They can also shop around to look for better deals on supplies and materials. They can move into more affordable office space and shop utility providers (e.g., cable or electricity) to see if they can secure more favorable contracts. The list goes on and on.

Seeking an easy solution to the cash problem, many small business owners try to take “the easy way out”—no matter how difficult it actually is—by laying off a few members of their team. Payroll expenses, after all, are quite hefty. Let go of a few of the lower-performing employees and you’ll drastically reduce your expenses and increase profitability, so the thinking goes.

But company layoffs aren’t as simple as letting people go and expecting things will turn around. Sure, there might be a few weeks or even months where revenues look great. But sooner or later, the smaller staff’s inability to get as much done becomes excruciatingly evident.

In addition to a significant drop in productivity, layoffs adversely affect small businesses in several other ways.

It Demoralizes the Rest of the Team.

Workplace friendships are critical to productivity and engagement. Having friends at the office makes it easier to get out of bed every morning. It also makes workers likelier to collaborate and support one another. As such, the more workplace friendships that exist at a business, the stronger the team is likely to be.

When company layoffs occur, it’s a virtual certainty that some workplace friendships will be abruptly shattered. The employees who hold onto their jobs won’t exactly be encouraged—quite the opposite. Fearful that the company may not rebound and their jobs may be on the chopping block, some remaining employees might start looking for new jobs.


It Makes Businesses Weaker.

When a company chooses to lay off workers, it loses out on those individuals’ knowledge, ideas, and skills. This is something that can’t be taken back simply by hiring new workers when business starts booming once again. Believe it or not, it takes as long as two years before new hires become fully productive in their roles.

By laying off your employees, you’re losing out on expertise that’s not easy to replace.

It Ruins Business Relationships.

Imagine you’re forced to lay off one of your most personable employees because he or she is not as tenured as some senior staffers. It pains you to have to let the person go, but you feel as though you don’t really have a choice.

Unfortunately, the person you lay off has amazing relationships with several clients. When those clients find out that the employee was let go, they are disappointed. Some might even think of taking their business elsewhere. Why would a strong business let a great worker go, anyway?

It’s Not as Cost-Saving as You Might Think.

The main reason why companies lay workers off is to save money. But what happens when business rebounds and you need more hands on deck to tackle increasing workloads?

The money you “save” laying people off might not really make that much of a difference when you’re forced to source, interview, hire, and onboard additional staffers as your business grows. Additionally, if workers who aren’t laid off find jobs elsewhere, you’ll have to cover the cost of finding their replacements, too.

With all this said, if cash is tight for your small business, think twice about conducting a round of company layoffs in an attempt to save money. You’re likely to find out that it does more harm than good.

Instead, apply for a small business loan and get the money you need to cover payroll during slower periods. That way, you won’t demoralize your team, and you will retain your top talent. That’s the ticket to better customer relationships; happier employees; and a stronger, more competitive company.

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