Take a Last Resort Stand on Layoffs

At the first sign of a southbound economy some companies rush into panic mode. They slash the staff and hope for the best.

Certainly, labor is the biggest expense for most businesses, which is why many managers believe there is no faster, more efficient way to improve the bottom line than by cutting staff.

But when you add up some of the costs of layoffs, such as severance payments, continued healthcare costs for some and higher unemployment charges, you may realize you are defeating your purpose. And that's only part of the picture. Since layoffs create uncertainty, they often prompt:

That's just the short term. Once the economy picks up steam, you'll have to spend money recruiting and training a new workforce. You might find that you're understaffed and unable to keep up with new demand — another strain on profitability.

There are stories of companies during the Great Depression that had employees wash windows over and over again rather than lay them off. The end result: a fiercely loyal and trained staff ready to jump into action as the economy turned slowly up.

Take a clue from those companies and adopt a contrarian stance when possible. Here are eight strategies to help you adapt to changing economic circumstances with layoffs as a last result. In the end, your company will be more efficient and better prepared to tackle the competition when the economy re-engages.

Of course, there's no way to know how long the economy will remain weak. But with some creative juggling, you can retain employees and give them a stronger determination to make the company succeed.

Downsizing can often do more harm than good. Over the long run downsized companies can be less profitable, according to a study by the University of Colorado. The study showed that over a three-year period, earnings quadrupled at firms that didn't lay off employees but only doubled at firms that downsized.

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