As the economy tightens up, you may find the need to downsize your business. Downsizing should be planned as thoroughly as starting a business.

Although there are many aspects to downsizing, reducing your workforce is probably the most significant aspect to consider. If you don’t have enough work for all your employees, a reduction in force can significantly reduce your expenses.

However, just because you need to downsize doesn’t mean you can use it as an excuse to get rid of the employees that you don’t like. You are not exempt from discrimination and wrongful-termination claims in choosing who is laid off. If you find yourself defending such a lawsuit, the cost in attorney fees will far exceed the savings in wages.

Structuring Your Layoffs

You must structure the layoff appropriately and legally. Make sure that there aren’t any unusual restrictions on layoffs. These would be found in your own employment manual or a collective-bargaining agreement with your employees, if you have one. Check these documents first. State or federal laws may also govern layoffs, depending upon the number of employees you have.

Start with a reduction plan, which is very similar to a business plan. A business plan plots out the first five years, determines what is needed and how it will be achieved over time. With a reduction plan, you also look at what your new, smaller business will need and how you will meet those needs over the downsizing period.

Next — without considering the specific employees that you have now — make a list of the number of employees and job skills needed to accomplish the goals in your reduction plan. The skill list will determine what positions you need to keep in the new business, not the positions you need to eliminate. After making this determination, look at your current employees and decide who fits the criteria. Focusing on whom you’re keeping rather than whom you’re laying off helps demonstrate the business nature of your decision. Forming a committee to review your decisions is also a good idea.

Reducing Your Space

If you have less work, you may also need less space. One way to deal with excess space is to sublease it. This provides income to cover your rental payments (or mortgage, if you own your building) and makes use of space that you don’t currently need.