Small Businesses Shed 75,000 Jobs in January. Is It Time for You to Lower Your Headcount?

It may be time to reconsider your staffing needs.

Although financial experts have been sounding recession warnings for many months now, the U.S. economy still seems to be in decent shape. And that extends to the labor market.

In fact, there were 106,000 new private sector jobs added in January, according to a new report by ADP. But while the private sector saw an uptick in jobs as a whole, small businesses actually shed 75,000 jobs last month.

When we break that down further by business size, we see that establishments with one to 19 employees downsized 70,000 jobs in January alone. Meanwhile, larger small businesses -- those with 20 to 49 employees -- only dumped 5,000 jobs last month.

Of course, it's easy to see why the smallest of companies were most likely to shed jobs. The smaller a company is, the fewer financial resources it tends to have. And given all the recession warnings, some businesses may have opted to start trimming their costs before the broad economic situation worsens. After all, it's a tactic many larger companies have employed since the start of the year -- and they have far more financial resources.

If you own a small business, you may be wondering if it's time for you to lower your headcount. Here's how to tackle that task.

1. See if money is tight

Many businesses large and small are feeling squeezed by inflation. Take a look at your banking records and bills. Do you need to start trimming costs immediately, or can it wait? If you're looking at the former situation, you may need to consider downsizing.

2. Assess each worker's value

Maybe money isn't particularly tight these days. But that doesn't mean you should be paying salaries that aren't giving you solid value in return.

Do an analysis of your various team members to see if any aren't pulling their weight or being productive enough to justify their salaries. It's never easy to let people go, but you shouldn't be paying for employees you don't need, or who aren't earning their keep.

3. Consider a shift in employment status

You may come to the conclusion that you don't need to pay your marketing director their $75,000 salary because the role doesn't really require 40 hours of work per week. Before you cut that position, talk to that person about shifting over to a part-time role. They may be amenable to it, especially if they have their own side gig they're trying to ramp up on.

Similarly, you may have some employees who are willing to work on a freelance basis rather than commit to a full-time schedule. Making that change could benefit you financially while benefiting them logistically, so it's worth having those conversations.

Just because many small businesses shed jobs last month doesn't necessarily mean it's time for you to slash your headcount. But it's definitely not a bad idea to think about your staffing needs and make sure your money is being spent the way it should be.