How and When to Conduct Layoffs: A Fractional CFO’s Guide for Business Owners

Laying people off is one of the hardest parts of running a business. No one starts a company dreaming of having to reduce staff, but sometimes it’s the only responsible move. As a fractional CFO firm, we’ve helped many small and mid-sized business owners navigate layoffs the right way — at the right time, with the right planning, and without destroying team morale.

1. Know the warning signs & act before you run out of cash

The time for layoffs usually becomes clear long before the crisis hits. Warning signs include:

• Persistent revenue declines across multiple months or quarters.

• Cash flow problems that can’t be fixed by cutting non-staff expenses.

• Big shifts in your market or business model — like automation or AI changing how work gets done.

For example, Chegg recently laid off 45% of its workforce, or 388 employees, after AI tools like ChatGPT started undercutting its homework-help model. The company waited until subscriptions and revenue dropped before acting — a reminder that timing matters.

2. Make layoffs part of a strategy, not a panic move

Layoffs should fit within a larger business plan. Ask: What are we trying to achieve by reducing staff?

• Streamlining costs to improve profitability?

• Refocusing the business on a core product line?

• Rebuilding for a smaller but more efficient future?

Before cutting staff, explore other levers:

• Freeze hiring or pay raises.

• Reduce contractor or overtime expenses.

• Restructure roles instead of eliminating them.

• Consider furloughs or reduced hours if you expect a short-term dip.

But when the numbers tell you you’re overstaffed, don’t delay. Every month you wait can cost thousands in unnecessary burn.

Even big companies frame layoffs strategically. Amazon, for example, is targeting as many as 30,0000 jobs to cut to shift focus toward AI and automation, while PwC trimmed staff because attrition had slowed and they were overstaffed for current demand.

3. Be transparent and humane

When layoffs are coming, employees deserve clarity and compassion.

• Explain the “why” in plain language.

• Deliver the message personally, not by email.

• Offer severance if possible — even two weeks’ pay and continued benefits go a long way.

• Provide references and job-search support.

You may not be able to avoid the pain, but you can preserve trust and reputation. How you handle people on the way out affects the morale of those who stay.

4. Use clear, fair criteria

Layoffs can open your company up to legal and ethical risk if they appear unfair.
Decide in advance: which departments or roles are truly non-essential? Which skills are still critical? Base your decisions on business needs, not personalities or tenure.

If you’re unsure, work with HR or legal counsel to review your process.

5. Communicate what comes next

Layoffs without a plan for the future leave everyone uneasy.
Once cuts are made, meet with your remaining team to share:

• What the company’s new structure looks like.

• How the business will stabilize and grow.

• Why the remaining employees are crucial to that plan.

6. Learn from the process

After the dust settles, take time to reflect.
Ask yourself:

• Did I wait too long to act?

• Were the criteria and communication fair?

• How can I better align staffing with future demand?

Document the lessons. As your business grows again, those insights will help you scale smarter — and avoid repeating mistakes.

7. Lead with confidence and empathy

As an owner, how you handle layoffs defines your leadership reputation.
Be decisive, clear, and compassionate. The goal isn’t just to cut costs — it’s to preserve your company’s long-term health and keep the door open for growth when the market rebounds.

The bigger picture: layoffs are trending again

Across industries, even profitable companies are tightening up.

• Chegg cut jobs due to AI disruption.

• Target streamlined operations amid slower consumer demand.

• Amazon restructured around automation and AI.

• PwC reduced headcount after years of high hiring and low turnover.

For small and medium-sized businesses, this means it’s normal to rethink staffing right now. The economy is shifting, technology is changing faster, and “right-sizing” your team may simply be smart business.

In short: Layoffs aren’t a sign of failure. They’re a sign that you’re paying attention. The key is to act early, act fairly, and act strategically. Like Target and Amazon, you can use the process to simplify and strengthen your business.

Handled with honesty and foresight, a painful layoff today can create the foundation for tomorrow’s comeback.

This article was written by a CFOshare employee with the help of AI.