Power to the people

guest commentary by David Potts

It has been said that the biggest reason small businesses fail is due to a lack of capital, a lack of money to get the business up and running. That is one reason small businesses fail. But I believe the lack of human capital may a bigger reason.

You and your employees are your human capital. A business can ultimately be only as good as the people who work in the business. People run equipment, implement systems and take care of customers. Motivated and trained people will run the equipment better, implement systems more conscientiously, and have genuine concern for your customers.

Big corporations have human resources departments and professional trainers. Because of the number of employees large businesses employ, it is easy for these businesses to hire the wrong person for the job and the consequences not be as severe. However, one person in a small business can be a significant part of the work force and if that person performs badly the consequences can be more significant. And if you, the business owner, are not aware of your employee’s bad performance, the damage can be severe.

You may wonder how you could not be aware of an employee’s bad performance. Does your behavior change when the preacher walks up? Maybe you clean up your language a bit? When the boss is present an employee’s behavior changes. Seldom do you see their real attitudes — many times poor attitudes. Eventually you will realize the employee’s performance wasn’t adequate and they shouldn’t be working for you. But at what cost to your business?

I once had a client rhetorically ask one of her employees why she thought they were in business. The employee sincerely said, “to provide us jobs.” The employee had no concept of the customer’s needs or the business’ need for profit. As a small business owner, this is not the type of person I would want to hire.

The problem is that many small businesses are quick to hire and slow to fire. Every small business owner has had at one time or another to wear a hundred different hats. You have limited time and energy. You are focused on getting your product or service out the door and when somebody quits or growth requires you to hire another employee you are in a hurry to hire somebody. You meet them, ask a few questions, and glance at their job application or resume. But you don’t have time to check references or run a credit report. You end up hiring the wrong person but it takes you a year or two to realize it. What opportunity for increasing your business’ performance did you give up by hiring the wrong person?

Small business owners are also guilty of neglecting good employees. Money, although important, is not usually the prime motivator for good employees. Liking who they work with, feedback on how well they are performing and knowing their efforts are contributing to the business’s success are also important. The availability of the opportunity to advance and the chance to better themselves are characteristics of good employees. Invest in their education and help them increase their skills. And although money may not be their prime motivation for working, it’s still important. Pay them the best you can.

And don’t forget you are part of the human capital of your business. What are you doing to improve yourself? Are you learning leadership skills? Are you learning how to read your financial statements?

The bottom line is that your business success is highly dependent on the quality of your employees. Learn how to interview potential employees. If you lack experience in hiring, ask a friend to help interview a potential new hire. As a friend reminded me this week, be slow to hire and quick to fire.

David Potts is a certified public accountant also accredited in business valuation. Owner of Potts & Company, Certified Public Accountants for more than 25 years, his practice focuses on small and medium size businesses and their owners in the areas of taxation, accounting and bookkeeping, business valuation and business advisory services. He is a Fort Smith native and a graduate of the University of Arkansas. You can follow more of his thoughts at ThePottsReport.com.