It’s never an easy road when considering whether or not to downsize your business. Unfortunately, reducing the size of your staff or physical space is sometimes needed to weather an unforeseen economic storm. When faced with hard times, the goal for any downsize should be to remain operational on a reduced scale while causing the least disruption. At the end of the process, a business should not only be leaner but also more efficient and longstanding.
Here are few things to keep in mind when planning a downsize.
Consider all your options
There are several cost-saving alternative options to downsizing – voluntary executive pay-cuts, early retirement offers, reduced hours of operation and temporary wage reductions to name a few. These approaches can help decrease overhead temporarily, when the length of economic uncertainty or poor profitability is hard to predict. If your business must shut down temporarily due to a physical disaster, business income/interruption and extra expense insurance may also offer protection.
Business income/interruption and extra expense insurance may cover income lost if a business is halted due to physical loss or damage from a covered peril, such as a fire or tornado. In addition to lost income, it can cover operating expenses, moving costs if a temporary location is needed, payroll, taxes and loan payments. Business income/interruption and extra expense coverage is typically not sold as a separate business insurance policy, instead it is added to a property/casualty policy via endorsement.
Navigating staff changes
When downsizing staff is necessary, be aware of federal and state legal requirements. Under Wisconsin law, businesses with 50 or more employees must provide 60 days advance notices of a large layoff. It’s also wise to talk with your insurance agent well before any major layoffs as premiums often decrease with fewer employees and more customized policies likely will need to be updated. The next difficult task is to establish layoff criteria. There are many different strategies for determining this, but the most important thing to remember is to reorganize in a way that allows your business to provide customers with the best possible products or services. This will help prevent additional layoffs down the road. No matter what factors are included in the final layoff criteria, respecting your employees and keeping open communication will go a long way in maintaining good morale. Despite the tough situation, employees who feel cared for will remain loyal and productive.
Moving to a smaller space
Relocating to a new location is somewhat common after a business downsizes as they no longer need as much space for a smaller staff. Just like downsizing from a $250,000 home to a $150,000 home can save over $5,000 a year, moving your business to a smaller space can help cut expenses, including rent, utilities and insurance premiums. However, in every move, it’s important to consider hidden costs: remodeling payments, like fresh paint or company signage, moving expenses, new furniture to fit the space or storage units for furniture that doesn’t fit the space but you may need in the future.
Damage to assets during a move can be a common occurrence and your standard business insurance policy likely does not cover loss or damage to possessions while in transit. Most professional moving companies offer insurance to cover this type of damage. If you’re renting a moving truck and doing the move yourself, most truck rental companies also offer insurance that protects the cargo along with the vehicle, driver and passengers. When moving into a new space, commercial equipment breakdown coverage can also protect you from unexpected repair or replacement costs due to an electrical outage or power surge.
With all these things to consider, assigning at least one person to handle the move, even when the new space is smaller, can help things go more smoothly. In the event that you need to file a claim for loss or damage, prepare a comprehensive inventory list with before and after pictures to help speed up the process and provide peace of mind on moving day.
For over 85 years, Rural Mutual has helped keep Wisconsin businesses strong, and we know how important it is to have the right people by your side to navigate the long and winding road. If you have questions about a recent change to your business and how it may impact your insurance, contact a Rural Mutual agent today.
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