Deciding to fire someone

I had a conversation with a business owner last week that is fairly typical. This business when compared to its peers was carrying way too much overhead. Delving further into the financial statements it didn't 't take long to identify the culprit. Wages and salaries were way too high. We ran some metrics such as revenue per employee, production per employee, production per non-production employee, etc. All of the KPI's we measured pointed to an under performing business. There were two ways out of the mess:

1. Increase revenue by roughly 50%


2. Decrease overhead by three administrative positions or one production position and one administrative position.

In our local economy and in this particular industry increasing revenue was not an option. In fact, all the indicators pointed to a trend of decreasing revenue until the real estate market recovers. That left what I thought was a clear option, but the more we talked the more resistance I experienced. This business owner simply was resisting the inevitable. I finally said "Look, you can do this now or you can flush another $120,000 down the drain and do it in six months. Either way, these people will eventually be gone.

I know what it's like. I've made bad decisions and I've been unwilling to do what was necessary to fix it. Most small businesses operate like families and some business owners can't stomach letting someone go. Eventually they are backed into a financial corner and there is no other choice. Until then they bury their head in the sand and the business suffers as a result. Here are three suggestions I offer business owners to try to keep them out of this mess in the first place.

1. Measure the amount of revenue generated by every employee against what it costs you to keep that person on the payroll. This sounds hard and sometimes it takes some real work, but if you can't point to a bottom line improvement in the financial statements you cannot justify keeping that person on the payroll.


2. Share the numbers with your employees. If they see that the business isn't doing so well they WILL get the message (if they don't they shouldn't be there anyway). I think it's far better to have a team striving toward a common goal than it is to have a bunch of people worried only about their individual quarterly performance evaluations. And for small business there's no better team goal than profitability.


3. Talk often. I recommend my clients sit down with their direct reports every 30 days. This gives you plenty of opportunities to talk about personal and professional development as well as any productivity or performance issues. Let the sessions be less formal than performance appraisals and listen twice as much as you talk. These sessions are invaluable for resolving the important but non-urgent problems your business faces every day.