Underperforming employees cost SMEs £39500 per year

Nine in ten small businesses report new hires need more support than initially anticipated. British SMEs are bearing the brunt of the skills crisis, with underperforming employees costing each firm £39,500 a year on average.

Consisting of salary costs and lost growth, SMEs are losing substantial amounts of profit due to poor hires. This is a crisis for the UK economy: with small businesses making up 99.3% of the country’s firms, their problem is the nation’s problem.

This is the key finding of new research into the skills challenges faced by UK SMEs conducted by consultancy firm, The Sunflower Group.

Hiring a new team member is a significant investment for any small firm. However, businesses are quickly finding the employees they invest money and aspirations in, need much more help than originally anticipated.

Nine in ten (89%) small and medium size businesses owners report new staff need more supervision and training than initially planned for. This means owners spend valuable time supervising employees, instead of focusing on growing the business, often what a new hire was supposed to enable them to do.

While we are a small business accountant, we also boast a highly-skilled business consultant as part of the team. Our consultant equips us with the ability to guide you through a very challenging time for businesses in search of new, quality staff.

Get in touch to discuss how we can help your business attract the highest level of talent.

Inability to hire skilled employees

The cost of underperforming staff is exacerbated by SMEs’ struggle to hire employees with the right skills in the first place.

Four in five (79%) owners report it being difficult to attract workers with the skills they need. Worse: almost a third (31%) say it is very hard to do so.

A critical reason for this is lack of funding: a fifth of all SME owners’ report they cannot afford to pay market salaries.

The issue is heightened further by would-be employees seeking jobs at more well-known firms. Four in ten (39%) SMEs cite their lack of brand power a reason for not being able to recruit.

Indicating the wider technical skills gap in the UK, production and operations is the business function most desperately lacking staff.

Over a quarter (28%) report it to be the one they struggle to hire for most. Sales (14%), finance (13%) and marketing (13%) make up other functions.

Between a rock and a hard place

Recruiting the right people is crucial for any business, but this is even more in focus for smaller businesses.

Attracting and securing new employees can be a costly and time consuming process, and with much of this often coming directly from cash flow, it’s easy to see why smaller business owners experience challenges. It’s between a rock and a hard place for many.

It’s clear that investing in staff is a top priority for many SMEs. In fact, 22 per cent of small and medium sized businesses would put increasing staff numbers at the top of their to-do list if their revenue were to double.

Plugging the gap

According to the latest figures from 2017’s year end, the number of people in employment in the UK fell by 56,000 towards the end of last year, the largest drop in employment the country has experienced in almost three years.

While more needs to be done to tackle the nationwide skills gap, there are several ways businesses can help overcome the barriers when it comes to hiring staff.

This increasingly tight job market puts the pressure on businesses to proactively attract the most valuable talent, which means taking a more strategic approach to hiring. While it can be tempting to make knee-jerk hires when facing immediate requirements, this approach could end up costing more in the long-run.

A more strategic approach to hiring can ensure that any organisational workforce challenges can be addressed – whether that be because the eventual hires have the right skills, are a strong cultural fit, have long-term potential, or, ideally, all three.

To develop a strategic approach, businesses need to understand how potential employees make decisions. A survey from HR Magazine found eight-in-10 professionals are unlikely to accept a job offer if they were treated poorly during the recruitment process, and will recount the bad experience to at least one person.

This demonstrates how employer branding is more important than ever and doesn’t just mean having a dedicated careers section on your website – it has to run through the core of every contact between the candidate and the company, much like effective conventional branding does with potential customers.

Handy tips

But there’s other ways SMEs can make their lives easier. For example, businesses should constantly re-evaluate how much money they have set aside to hire new staff, particularly as the business expands.

Also make sure you have a long term plan in place so you can reward – and therefore retain – skilled staff by granting higher pay packets.

Another thing to consider when hiring junior staff is whether they have the right attitude to working at your company, even if they don’t necessarily tick all the boxes in terms of skills.

After all, you might be able to help them move forward with their career, and in turn they could help your business flourish.