Where Small Business Owners Shouldn't Cut Costs

Is the economic slowdown squeezing your bottom line? If so, you're not alone. Everyone is feeling the pinch these days. If you're like most business owners, you're looking for a way to cut costs. A word of advice from the University of Wisconsin School of Business: Stay away from personnel. Sure, it might be the most obvious place to free up some money, but slashing paychecks will cost you dearly, according to a U.S. News & World Report brief on the Wisconsin business school's research.

The report, which was originally published in the Academy of Management Journal, studied the downsizing and turnover rates of 200 companies, finding that, when a company lays off workers, it often experiences an exodus of even more employees. By downsizing its workforce by 5 percent, a company was likely to experience an average 14.9 percent turnover rate, compared with 10.4 percent at companies that didn't cut staff. So, if you're facing tough times ahead, remember: Putting employees before profits will keep morale high and pay off down the road.