Human Resource Management for Small Businesses

As a small business manager, you'll always be involved in human resource management. Good or bad, it will always be there for you to handle.

It can become the single largest consumer of your time and energy if you don't know how to handle things well. And, it's still a big consumer of your time and energy, even if you're adept at handling such things.

That's just how it is. The only way to avoid employee issues is to do everything yourself.

Let's look at some of the key issues associated with human resource management to understand what this area of management can involve. We'll look at human resource practices, and provide some examples. We'll also look at tips for how to handle certain situations.

Human resource management is something that we all must do if we are going to be successful. The reason is simple; human resources are the most important assets we have in most small businesses.

Have a Staffing Plan

Before you start to think about hiring, you'll need at least a basic staffing plan. The plan should sort out how many employees you expect to hire, the type of employee you're looking for, and what they will be expected to do. The plan should also address how the employee expenses will be covered.

A staffing plan should be well coordinated with your business plan, and it should address items of discussion that will likely take place during candidate interviews.

The plan doesn't have to be detailed or lengthy, just something that addresses the key issues at a satisfactory level so that wise management decisions can be made based on its content.

Here are the basics of a staffing plan.

  • objectives, both near and long term
  • characteristics and culture of your employee(s)
  • approach to finding new employees
  • how you're going to keep good employees
  • training and transition
  • funding of employees
  • job descriptions
  • organization chart

The staffing plan has to provide a vision. In the absence of a vision, it's easy to go off course or go nowhere at all. In addition to helping you understand your plans for growth, a staffing plan is also useful to help communicate to lenders and prospective employees just what kind of organization you are trying to create and maintain.

Finding Good Employees

An important part of good human resource management is finding the right employees for the work you are doing. This is where the idea of culture comes into play. Your human resources are the most important asset you have, so you want them to be of high value to your organization, and that means they need to have the same culture as you and your organization.

In order to get high value employees, you'll have to spend some time finding them. Here are ways of finding new employees:

  • ads in publications (general or trade specific)
  • word of mouth by current employees, associates and customers
  • co-op program through schools
  • campus recruitment activities
  • military recruiting activities
  • temp to perm hires
  • professional recruiters
  • government employment services and agencies

If you expect to have regular growth in your business, then you'll need to spend a considerable amount of time recruiting. You'll "kiss a lot of frogs" before you find your prince. Finding good employees can be difficult because many of the good ones are working elsewhere and smart employers won't want to let go of them.

One of my human resource management (and business management) philosophies goes like this: "I rather be swamped with work, rather than hire the wrong person." Here are the reasons:

  • hiring can be costly
  • it consumes a lot of your time
  • new employees stress out current employees
  • firing employees stresses you
  • exiting staff can stress out current employees

Don't take hiring lightly. Make good selections and take care of your employees through effective human resource management actions. To find good employees, you'll need to screen them.

Screening Potential Candidates

There are many ways to screen potential employees. Let's look at several key ways that reflect good human resource management techniques.

First, be selective as to your recruiting grounds. You wouldn't look for a brain surgeon at the bus stop, so don't look for your "right hand man" there either - unless your business has something to do with metro mass transit.

Make certain that where you're looking for employees is conducive to finding what you're looking for. A small and aggressive organization shouldn't be looking for potential recruits from large and clumsy organizations that reward longevity instead of leadership and reasonable risk taking.

Second, take a look at current employment on the resume or application. Pretend for a moment that it's your employment and then ask yourself what it tells others. Ideally, current employment should reflect:

  • challenge
  • tenacity
  • hard work
  • useful skills

Third, take a good hard look at employment history as shown on the resume or application. What does it tell you about the person and their method of operation? Ideally, employment history should show:

  • aiming high
  • job advancement
  • good judgement
  • reasonable risk taking
  • accomplishment
  • reasonable loyalty

Fourth, only select for formal interviews those individuals that you believe offer the best chance of meeting your needs as an employee. Interviewing takes time - your time and the time of others. Don't waste it interviewing everyone that shows an interest in your job opportunity.

Personnel Interviews

Here is where you can distinguish between "the good, the bad, the ugly, and the bizarre". Take your time and be comprehensive as well as methodical. There is lots to learn from a job interview that applies to making a "good hire" as well as being smarter for the next interviewee.

Here are some keys to success:

  • Spend lots of time with the applicant during the interview.
  • Have more than one person interview the candidate.
  • Ask good open ended questions to learn who they are and what they can and want to do.
  • Let them tell you a story about their work, their life and where they think they are headed; they should be "selling" to you.
  • Don't "sell" the company or your organization to them unless and until you're certain that they are a good fit.

This is going to sound bizarre, but my advice is don't look at the resume or job application until you are finished with your general questions and discussion, and you're ready to wrap things up.

Think of a resume as the human resource management equivalent to a glossy brochure for a car. Don't just read the brochure - look under the hood and take the thing out for a test drive. Look at resumes near the end of the interview to see if there is anything in particular that didn't come up in discussion, then focus on that.

Take notes during interviews so you can compare with others that interview the same candidate. Notes are also useful when trying to sort out among multiple candidates that all seem to be a good fit.

Steer clear of discussing benefits, relocation, retirement and other items that aren't at the core of your business. Pay attention to see if your candidate is primarily interested in these peripheral items, or in the core job opportunity. This will tell you a lot about what he or she is searching for.

Don't initiate discussion about compensation unless you are ready to hire. If the topic is brought up by the interviewee, then only ask what your candidate requires in terms of compensation.


Except in the most informal of situations, hiring should always be done with an offer letter. The letter should spell out all the particulars of the job including:

  • compensation
  • benefits
  • responsibilities
  • performance expectations
  • probationary period
  • reporting requirements
  • desired start date
  • work location

It needs to be made clear at the start what is being offered, and what is expected. If it's in writing, then it's difficult to have a misunderstanding. The offer letter helps document the contractual relationship between the new employee and the employer.

If you're going to be successful at human resource management, expectations for employees need to be clearly establish at the start. Putting those expectations in writing is a good way to do just that.

Human Resource Management Guidelines

If your organization is going to be rather large, you might want to put together guidelines to explain human resource management policies that you intend to follow. The guidelines should address things like:

  • at will employment
  • compensation
  • perquisites and bonuses
  • performance reviews
  • lay offs
  • terminations
  • conflicts of interest
  • disciplinary process
  • vacation time
  • sick time
  • family time
  • leave of absence
  • employee behavior

It doesn't have to be anything fancy. A page or two for each topic might be just fine. The more robust your organization, the more you'll want to be consistent about human resource management. Having it in writing will help you do just that.

Retaining Employees

Implementing your small business ideas will require good staff. Once you find them, you don't want to let them go elsewhere.

During an employee's time with a company, there are a number of forces that act on him or her that influence behavior. Think of these influences as little nudges. I like to refer to them as "push" and "pull". In the most simplistic of terms, you're either pushing an employee towards the door, or pulling them deeper into the folds of your organization.

Assuming that you've made a good hire and you want to keep employees, the trick is to recognize individual needs of employees and cater to those needs, within reason, in order to keep pulling them away from the door. Even if you can't pull them away from the door, at least don't do things to push them out the door.

Many things in life offer us a "push" and a "pull". Some things push us away from where we are, and other things pull us toward a new place to be. Typically it takes both a push and a pull to make an employee change jobs.

To retain employees, your human resource management philosophy should be to eliminate things that push employees out. It should also, within reason, provide a number of things that keep pulling employees into the organization. Both approaches should be successful in retaining good employees as they both counteract the "pulls" from outside organizations.

Recognize of course, that some employees will lose interest and need something fresh to keep their interest. If you can't continually provide challenges, opportunities for advancement and other interesting and rewarding opportunities, then you'll have some employees leave through no fault of your own.

The important thing is to identify your key employees and make certain they are being treated well. Interact with them on a regular basis to make certain that you understand what makes them tick, and be aware of concerns they may have about job satisfaction.

Employee Performance

A traditional approach to human resource management is to conduct annual employee performance appraisals. Why? Do employees only perform annually? Is there a performance appraisal season? Do you only lay off or fire employees annually?

Toss out whatever you learned about employee performance appraisals and consider the following:

  • poor performance needs to be identified and corrected immediately
  • good performance needs to be rewarded - anytime it occurs
  • performance that gets rewarded will surely be recognized and repeated
  • there are many different ways to reward good performers
  • poor performers are often your fault
  • pay for performance is a great idea
  • time delayed bonuses are a great idea
  • making performance improvement contracts is a good idea
  • be aware that "relative deprivation" is at work everywhere across your organization
  • you can change employee status and pay based on performance

The big picture to keep in mind is that your organization functions as a team, whether you see it that way or not. Everyone will be quietly evaluating employee performance and comparing that with their pay, perquisites and bonuses to see if things are just.

The perception of justice helps keep the team operating well. Injustice, real or perceived, can upset the team at all levels. Your job is to provide for justice, or prepare for discontentment, mutiny and desertion. Here are two examples:

A high performing employee, who sacrifices personal time and energy to make certain their end of the operation is efficient and productive, is not recognized for her contribution to the company effort. Even with higher compensation than most, she starts to feel deprived relative to others because there are others doing much less work, getting recognition for their modest contributions, and getting just a little less pay.

A modest performing employee enjoys "home office" work while other much higher performing employees, who have already paid their "dues" with plenty of field work, are still out on the road giving up much personal time with friends and family back home because they don't go home each night like our modest performer. Even a work location can be seen as a reward for performance. When apparent rewards are bestowed on others less deserving, morale can suffer.

In a larger company, some of these issues might be handled by the human resource management department, but for a small business, it's all on your shoulders. As the head of human resource management (and everything else), be aware that everyone has a sense of justice, and injustices are only tolerated for so long.

The best approach to human resource management is to actively seek out potential sore spots and find a workable solution that is reasonable when viewed from "30,000 feet".

If you have a poor performing employee, you must sit down with them to discuss your expectations in light of their performance, and then lay out what improvements you expect to see. Make certain that it's clear that their continued employment is contingent upon them being successful in meeting your expectations.

You're not in business to provide employment, but your employees are there to be an asset for your enterprise, so orient your actions and their discipline accordingly. If you mess around, you'll be messed around with.

A good human resource management policy is "firm and fair" with a good helping of understanding and compassion for others. Nevertheless, you're there to meet customer needs and provide for yourself, and your employees should be there to support your efforts.

Laying Off

If you're managing things well, and you have a reasonably stable marketplace, there shouldn't be much of a need to lay off employees. Your business plan and staffing plan should be well coordinated such that both help you grow the business in a steady and well-reasoned manner.

Before laying anyone off, be certain you have exhausted all reasonable possibilities to avoid doing so. Consider:

  • other suitable work
  • change of work hours
  • different work location
  • change of employment status
  • different compensation plan

Sit down with them and try to work other angles that can keep them associated with your business. You've invested in your employees, so as a good human resource management policy, you don't want to toss away that investment and risk it going to a competitor by laying off an employee.

Also consider that if you are laying off and rehiring employees, you'll look like a human resource management yo-yo, and that can't help but undermine employee confidence in the company position, and send a distress signal to your competitors.

If you have to lay off an employee, just be honest and upfront about the reasons why, and try to give as much advance notice as possible so they can look for other work. This is an employee that you would like to take back into the fold, so don't do anything that would queer that possibility.

On the other hand, if you would rather not have that employee in your organization, then simply fire them and be done with it.


Firing someone is never a pleasant activity. It is something you hope you never have to do. Employees should see that they are a misfit and "fire" themselves voluntarily. If not, you'll have to do the job for them.

First, make certain that you have gone "all the way through it" to be sure that you're making the right decision. Often discussion with the poor performing employee is necessary to be certain you have justification for their dismissal.

Next, sit down with the employee and discuss their performance, your attempts to change their performance to suit your needs, and explain that their performance has not met your expectations. Provide examples of unsatisfactory performance and explain that they are no longer a match for your organization.

After you have presented your case, they'll be expecting the axe (and no longer listening to anything you have to say), so you can then sum it up by saying something like "this just isn't working, so I am terminating your employment effective today/immediately/at close of business on Friday", or whatever you believe to be appropriate.

It's a good human resource management philosophy to give them reasonable time to get their personal belongings, or make arrangements for them to be sent to them, and escort them to the door. You need to be fair and respectful, as how you treat any employee will become known to all others in your employ.

Human Resource Management Alternatives

Okay, so all this talk about employees is a little intimidating. I can't blame you for thinking that way. Good employees are a wonderful experience. Not-so-good employees are a pain in the neck, or perhaps a bit lower.

So, what are the alternatives to traditional human resource management? Here are some to consider:

  • contract help
  • associates
  • temp to perm arrangements
  • partners
  • going it alone

Each has it's pros and cons, so consider each alternative carefully before you make a decision with respect to how you'll satisfy your need for human resources as you implement your small business ideas.

I wish you well on your human resource management mission.

Done with Human Resource Management, take be Home

The only business you'll really ever be part of is your own.

Wondering about what to do with your savings so inflation doesn't eat it up? Start your own enterprise. It's a good way to invest your capital and make it work for you. Who will be better at keeping an eye on your investment than you?