As we approach a new financial year and high interest rates continue to squeeze profit margins, you might be thinking about revisiting your headcount and potentially rightsizing your business.
Here’s an outline of what business rightsizing involves.
What is business rightsizing?
Rightsizing doesn’t necessarily mean chopping headcount but it might mean rearranging your business so people can be more productive or potentially finding ways to move some jobs offshore. This strategy will help you find the right ways to meet your business objectives and profit goals.
Rightsizing isn’t solely about ending team members’ employment, though it can be necessary. It’s about restructuring to create a more successful balance.
The difference between rightsizing and downsizing is that downsizing usually means shrinking everything. Rightsizing might mean hiring offshore or changing the amount of a particular good or service you provide.
When to rightsize your business
There really isn’t any right or wrong time to rightsize. Sometimes new technology or ways of working can be applied to minimise headcount, or you may find you’re in a growth phase and it is essential to hit a certain number of employees to meet demand.
Different businesses experience surges and downturns at different times so there is no rule of thumb for when to look into rightsizing. Sometimes the change will come about because of a new leader or contract, or a change in the market may make a rightsizing exercise necessary.
As explained by Forbes, rightsizing should actually be continual once your business hits a certain size. The market is continually evolving and your business should as well.
Read more: How to insolvency-proof your business
How to rightsize
1. Assess operational efficiency
If you suspect it’s time to rightsize your business , the first step is a review of how different areas are performing in terms of productivity and profitability.
This means evaluating every aspect of your business. This can include:
- Production processes
- Workflow systems
- Staffing levels
- Inventory and stock management
- In-house teams such as sales, marketing, HR and finance
Rightsizing means asking a lot of questions and looking at numbers. When you look at your dashboards, it should start to become apparent what can change.
Once you have an idea of where inefficiencies lie, you can start to make the necessary decisions about how and where to reallocate resources.
2. Make changes to reflect cost and revenue requirements
The most important part of rightsizing is to balance cost and revenue. There’s no point of getting rid of five people if they are key revenue drivers for your business, although there may be a way to divide responsibilities between three people and add a lower paid team member to support them.
Rightsizing can also examine your suppliers and their charges. If a contract is up for review, take a detailed look at how the expense is affecting your bottom line and how it can potentially be reduced.
Budget could also be redirected from one expense to another in order to help your business grow.
3. Embrace technology
From cloud-based software and AI to automation tools to e-commerce platforms, technology offers countless opportunities to streamline processes, improve efficiency, and drive growth.
In the modern age it’s not about replacing people with machines, it’s about empowering them to use technology to achieve more.
4. Communicate and collaborate
Successful rightsizing takes a team effort and a strategic approach.
At the end of the day, your business exists primarily to make money. Once it has established steady profits, you can focus on enriching the lives of employees and community, and moving towards steps like franchising or succession planning.
You may need the help of a financial expert to help you rightsize so your venture remains profitable, particularly in these economically challenging times.
Need help to review profits and rightsize? Reach out to Mobbs & Company today.
