After six years in business, Jim Fitzgerald found out a sad truth of the management consulting field: The flow of business at times requires companies to shrink as well as grow.

Last winter, he had his hands full. Specializing in East-West trade agreements, he and his four employees were busy day and night to keep up with the flurry of work that followed the fall of communist governments in Eastern Europe.

But by summer, Fitzgerald said, business had dropped off. He had too little work for his five-person staff, and too much space in their three-office suite at Metro Office Management Inc.'s downtown Washington building. In July he decided to lay off two people and downsize the business.

Without changing the firm's address or phone number, Fitzgerald scaled back to one office. What made that possible was a lease arrangement that many small companies are trying: shared office space, sometimes known as executive suites.

When sales drop off, businesses such as Fitzgerald's look for ways to reduce overhead. Layoffs and office space cutbacks can have more sting for them, but such steps -- and the flexibility to take them quickly -- are often crucial to survival.

"In this business, projects come quickly, you do them quickly, and when you're done you have to downspace quickly," Fitzgerald said.

Fitzgerald's leasing arrangement, like other shared office space deals, lets him get out of the lease with only 60 days' notice. Such arrangements also provide small businesses with shared access to equipment and conference rooms, and the services of a receptionist and office manager.

Most businesses are not accustomed to paying as much as $15,000 a year in rent, but the price also reflects other services that otherwise would be paid for separately.

By eliminating chores such as answering phones and handling equipment maintenance agreements, companies reduce paperwork. And by letting their customers out of leases on short notice, providers of shared office space profit by appealing to small businesses that need to respond quickly to volatile sales.

When times are really tough, some businesses move out of their offices entirely. For as little as about $1,000 a year, they can have an "executive identity" where they have a phone number answered by a receptionist in the company's name, as well as access to the conference rooms and office equipment.

The shared space concept has been around since the 1970s and is used primarily by start-up consulting firms, private practices and branch offices. But local executive suite providers say business with other small companies has picked up in the past year.

Doris Kelly, whose marketing consulting firm Penmore Communications and is one of Fitzgerald's office neighbors, said the arrangement is "great, because this year {we} never know from month to month what our status is going to be."

Like many public relations and advertising firms, Kelly said, her company has taken the brunt of cutbacks by its clients, which include a tile shop, a medical clinic and a high-tech company.

Last year, her company had 15 people on the payroll and a profit of about $100,000. Now she has cut back to one person besides herself and relies on free-lance writers and designers. She has cut the company's space back considerably, too.

But sharing office space can be uncomfortable if the landlords aren't flexible, Kelly said. An earlier deal didn't work out because the management did not understand small business space needs.

Being able to alter office space and telephone configurations -- and at the same time disguise such cutbacks from potential clients -- is crucial, Fitzgerald said.

"Credibility is everything," Kelly said.

Although Penmore Communications isn't expected to make a profit this year, things could be worse, she said. "As far as everyone else is concerned, I'm doing just fine."