We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is Curtailment?

Malcolm Tatum
By
Updated: May 16, 2024
Views: 9,045
Share

In finance, curtailment is a term that refers to actions that are aimed at reducing costs and bringing about a more stable financial base. Companies often make use of curtailment strategies in order to remain viable while undergoing some type of financial crisis, and thus avoid the necessity of bankruptcy or a complete shutdown of the business. Curtailment, which is also known as retrenchment, may involve making changes that are more or less permanent, or designed to remain in place until the current crisis has abated.

There are several different ways to engage in curtailment. The most common approach has to do with a reduction in operating expenses. This frequently comes about by reducing the number of active employees. The process may focus on laying off a portion of the workforce, a move that makes it possible to save on salaries and employee benefits while the company is going through a difficult financial period. This approach makes it possible to call employees back from a layoff when the business emerges from the rough period, and the demand for the goods and services produced increases once more.

Curtailment may also come in the form of permanently eliminating some job positions, and transferring the responsibilities formerly associated with those positions to employees who remain with the company. For example, if the inspection and packing departments of a manufacturing plant were once two distinct entities, a company may choose to combine them into one unified department. Doing so makes it possible to eliminate anywhere from a third to one-half of the work positions and thus save a great deal on wages and benefits.

In some situations, curtailment involves contracting out functions that were once handled in-house. One common approach used by many smaller companies is to reduce the accounting department by contracting an outside service to handle the processing of the payroll, the preparation and mailing of invoices to customers, or even keeping the accounting books for the business. This strategy allows the company to continue managing its finances effectively, but eliminates a great deal of the cost.

Curtailment may also involve spinning off a portion of the corporation in order to generate revenue while also reducing overall operational costs. Sometimes referred to as an equity carve-out, this approach may involve selling off a minority share of a side business owned by the company. The business still retains controlling interest, but benefits from the financial support rendered by the new minority partner, especially with operational expenses related to the ongoing function of the subsidiary.

Share
SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
Share
https://www.smartcapitalmind.com/what-is-curtailment.htm
Copy this link
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.