Why Performance Reviews Are Critical for Small Businesses



Some of the key hallmarks of small businesses are their entrepreneurship, their adaptability, and their nimbleness. Often, these important characteristics lead owners and managers to decide that a traditional performance review process doesn’t fit with their small business’ culture. After all, the standard model of performance reviews can seem archaic and more well-suited to regimented large corporations rather than flexible small businesses.

However, routine performance reviews offer especially significant benefits for small business while still allowing these companies to stay true to their culture and their goals. Here are the seven reasons why performance reviews are particularly critical for smaller companies.

Great employees are tough to find and harder to retain.

As a small business owner or manager, you want to craft a team of employees that are dedicated, exceptional overachievers. After all, the contributions of every single employee are much more critical at a small company than at a large corporation. However, superstar employees are tough to find, and these stellar team members are likely to want opportunities to develop and grow in their career. That’s one reason why an established performance review system is so important. A properly-designed review process can help identify your strongest employees and work with them to create a development plan that can nurture their long-term career trajectories, while employees who need improvement are given the tools to flourish.

Performance reviews can help with business goal setting in general.

An older view of performance reviews has seen the process as a way of making employees accountable for past work–and specifically any less-than-stellar performance. Performance reviews for small business employees in particular, however, can be more effective if the process is shifted to be more forward-looking. Discussing big picture concerns and helping each of your employees to set goals for themselves can make them more invested in your business’ future and success. In turn, this process of discussing each employee’s individual objectives within your company can help you with business goal setting in general as well as allowing you to spot opportunities to better utilize talented employees.

A standardized review process keeps employee rewards transparent and fair.

Every employee wants to be recognized for their hard work and good performance, and for many, this means a raise, a bonus or a promotion. Sticky situations can arise when one employee gets the promotion that another wants, and you are put in the position of trying to explain why this is the case. By integrating and linking annual compensation adjustments and promotions into the performance review process, you can make these conversations a lot easier. Even if you don’t use a formal ranking system, simply communicating clearly and providing thorough feedback during performance reviews can make employees feel that any raises, bonuses or promotions are distributed more fairly.

Scheduled reviews aid in improving communication.

As noted, effective performance reviews are not simply one-sided monologues about an employee’s performance. Instead, a good review process can act as a platform to facilitate conversations between manager and employee about goals, objectives, and paths for development. Many people–from business owners through entry-level employees–are not naturally confident and proactive communicators, and yet proper communication is a critical component for small companies looking to meet challenges and grow their business. In this way, a comprehensive employee performance review system that promotes regular discussion can have a huge long-term effect on fostering positive employee-manager relationships.

Potential issues with employees can be dealt with properly.

While you may hope that every employee that you hire is a superstar, chances are that you’ll face issues with employee performance at some point. You don’t necessarily need a formal review process to deal with these types of issues, but many small businesses nurture a close-knit and “family-like” culture that makes ad hoc discussions about employee performance difficult. Moreover, a conversation held in the lunchroom over coffee about an employee’s constant lateness is much easier for the tardy employee to brush off as a friendly reminder rather than the serious discussion it should be. Lastly, managers and small business owners who make decisions and communicate with employees about performance issues outside of a formal review structure risk running into legal issues if employees are treated inconsistently. A structured performance review system allows small businesses to more effective craft plans for improvement with underperforming employees while helping to avoid the appearance of unlawful preferential treatment.

You can design a system that fits your needs and style.

Formal performance reviews have a bad connotation for many, particularly small business owners and managers. Such a system can seem to be overly focused on ranking and disciplining employees while creating a lot of unnecessary paperwork, and often this process seems antithetical to small business culture. The beauty of the modern performance review, however, is that it can be anything your business wants and needs it to be. If you want to eliminate time-consuming write-ups, you can. Are once-a-year conversations too infrequent? You can put in place a monthly or quarterly system of one-on-one meetings. In short, you can make your performance review process fit your business style rather than the other way around.

Tools can make the review process more efficient.

A regimented performance review process often conjures images of long hours spent conducting surveys, filling out forms and manually compiling performance data. For small businesses, in particular, this alone can make performance reviews seem like more trouble than they’re worth. However, utilizing a software program designed to manage your performance review system can streamline the process and make the whole undertaking much more efficient. Such programs make the task of gathering and analyzing an employee’s feedback much more automated, saving significant time. Reports that would have been overwhelming without software support such as 360-degree reviews become possible, providing both managers and employees with a fuller picture of their strengths and opportunities. In general, performance review software can handle the heavy lifting that’s often associated with the process, enabling you and your employees to reap the benefits of regular performance reviews without having to shoulder the burden of administration.