HR for Small Business Owners: Why You Shouldn't Overlook HR

By Tegan Fitzpatrick

When you're an entrepreneur, you generally need to understand every function of your company: operations, sales, marketing, finances, and human resources. Many business owners, however, only concentrate on departments that are directly linked to sales and increased ROI, and put human resources on the back burner.

However, by not making HR a critical department in your operation, you are sabotaging your company. This is not to say that a startup should immediately hire an HR coordinator, but if you run a small business, you need to be knowledgeable about HR. Implementing the following practices will put your organization in a stronger position for growth and financial success.

1. Develop a business compensation plan

When you are running a company with 10 employees and each holds a vital position, it can be detrimental if one employee leaves. According to a Pew Research study, 63% of employees who left a job in 2021 left seeking higher pay. So how do you know what to pay an employee?

Pay them too much, and your company could go bankrupt before your first year is up. Pay too little, and you will not attract quality employees which can also cause your company to fail. Therefore, thoughtful pay scales should be instituted that link employees' skills and abilities to the market. And by doing this during the early stages of your business, you will save yourself a lot of grief in the future.

Here is how a pay scale will benefit your company:

• You will hire the right employees. If you have researched the market, then you know exactly what kind of employees you will be attracting with the salary you are offering.
• It creates a trusting, transparent environment. In many modern companies, the pay scales of employees are visible for all to see. When your employees know that coworkers with a similar skill set have the same salary, it's an excellent way to raise employee morale. This also helps your employees to plan for their future with the company, knowing where they want to go with the expectation of the pay they will make.
• You eliminate the guesswork. Companies that deal with compensation by using a case-by-case method will likely create inequity of pay within their organization. This will likely lead to employees becoming extremely underpaid or overpaid compared to the market.
• There will be fewer future complications. If pay scales are not implemented when there are only 10 employees in the company, it will become a nightmare to implement when there are 100. On top of that, Employee morale will be a nightmare with changing everyone's income to fit within a grade.
• Company financials will be healthy. Your accountant will one day thank you for this.

Keep in mind that pay scales are always adjustable. Once a pay scale has been established, it's easy to increase with inflation and as the company becomes more successful.

2. Write job descriptions

Every entrepreneur has gone through it: You are overwhelmed with product orders, inventory counts, making rent for the new office, marketing, and who knows what else. You are finally at the breaking point—you need help.

The first employee that you hire is a jack-of-all-trades, and so are the next two. It finally gets to a point where everyone is doing everything and your company is less productive than ever before; employees are upset because they don't know what's expected from them and what they should be doing.

So, before you get to that point, sit down and begin writing and researching job descriptions. Why do you need to hire an employee? For what tasks? What skills do you need applicants to possess? How many people do you need? Do you need full-time or part-time staff? Can you afford full-time staff?

These are just a few of the questions to think about before you hiring. Not only will a good job description help to attract the right candidates, but it also contributes to:

• Clearer work expectations. Your employees will know what their duties are and what is expected of them.
• A boost in employee morale. Employees are happier if they have a clear purpose and vision for what they are supposed to accomplish.
• Legal protection. If an employee was to ever come back and sue for being fired without cause, you policies will clearly outline what was expected of them and how they were not a match for your company.
• Less negativity. You'll avoid a negative culture of employees complaining that a particular duty you want them to do "isn't their job."
• Makes it easier to measure employee performance. You will know whom to promote and who needs a performance review.

3. Conduct exit interviews

This is a situation that every leader will have to face one day: an employee decides to quit. The way you handle this situation can be a major turning point for your company. In fact, the exit of an employee can become an exciting opportunity for company growth and change.

When an employee leaves, you will need to conduct an exit interview to find out why the employee is leaving. Sure, sometimes employees leave because they are relocating to another city, but sometimes they leave because they were offered a better opportunity to do their same job at a similar startup.

Feeling disrespected at work, unhappiness with advancement opportunities and lack of flexibility are other major reasons employees left their jobs in 2021. This means that the reason an employee leaves is within your control. Exit interviews can help to avoid future turnover if the cause of an employee leaving is internal.

Your employee could be unhappy for a number of reasons: lack of training, hostile work environment, not getting along with another employee—the list is endless. Finding the root cause of why an employee is quitting will help you to solve internal issues and reduce future turnover.

We know, however, that exit interviews can be awkward and in a face-to-face encounter an employee may not necessarily share the truth. This is why it is important to come up with a way to find out the truth: an emailed survey, a phone call from a secondary company, a questionnaire, etc. are all ways to obtain information. Once you've gotten feedback, then you can take action to make changes within your organization that will hopefully reduce future turnover.

4. Create a company mission statement

Many entrepreneurs roll their eyes when they're asked what their company's mission statement is. What they don't realize is having a mission and a vision guided by values may be the most important step in building a company.

Let's look at the mission statement of Patagonia: "Patagonia is in business to save our home planet." Short. Sweet. Powerful. It's backed by the values of sustainability, creating quality products, and causing no unnecessary harm. So now you need to sit down and figure out why you created a business, what needs to be accomplished, and come up with core values that will guide it in the right direction.

So why have you created your startup? Is it a blog that will inspire and empower women? Perhaps you've developed a technology will lead to a cure for cancer. The reason you created your company and your product is your mission and values. This will lead to the formation of a company culture full of like-minded employees excited to contribute to your mission. This is the mantra that will lead to all future decisions that will make your startup successful. Write down your values and find your mission.

RELATED: Hiring Your First Employee: 8 Key Questions to Ask