A reduction in a companyÂ’s workforce, typically accompanied through layoffs. A company downsizes in order to reduce costs. Downsizing is done in a period of declining sales and is one of the few things a company can do to improve its profitability when it isnÂ’t able to sell more goods. Companies usually take restructuring charges that are applied to their income statement in order to account for the costs associated with laying people off, such as severance pay.