If your business suffers during an economic downturn, you are not alone. However, some businesses thrive during lean times and are recession-proof. Downsizing your business is difficult and can pose dangers to both your business and team. The following are the three biggest mistakes businesses make when cutting expenses.

Not Cutting Soon Enough

A first mistake made when cutting a company’s expenses is not cutting soon enough. Employees should understand the downturn is not a trend that will take care of itself in a hurry. Communicate with your employees and suppliers that your focus should turn to your top customers. Ensure you satisfy these top customers’ needs first. In a downturn, your money and other resources may not accomplish what they would before. If the situation becomes bad enough, you could redesign the company in view of the worst-case scenario. Remember, however, the choices you make may not be easy ones and may affect your employees’ jobs.

Cutting the Wrong Things

A second mistake made when cutting a company’s expenses is cutting the wrong things. Cutting your overhead expenses doesn’t have to be painful. It doesn’t make sense to cut things that don’t need to be cut, like a very profitable division or an eager workforce. As in a relationship, communication with your employees is vital to the health of the company. You should communicate with these groups concerning the need to downsize and explain the reasons are not within anyone’s control. This will help ensure no one or group feels at fault, only that job losses will work towards everyone’s best interest. Employees are more likely to follow your cost-cutting lead if they see your commitment to a plan—even if it means their job.

Making Company-wide Cuts

A third mistake that management can make during an economic downturn is the immediate implementation of companywide cuts. For example, you could cut your workforce by 50 percent, but you need to be able to perform necessary functions with this reduced workforce. This may beg the question: Were these people even necessary? However, letting go of an entire department may be cutting off your nose despite your face. You should make cuts, but these cuts need not be overly painful.

Our nation’s economy has seen its difficulties. Not just our economy but also the small, medium, and large businesses that compose the economy sometimes need help. Doing these things can help pinpoint where to make these cuts.

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