As you grow your small business, you’ll need a team to handle day-to-day operations, whether you’re running a restaurant, a retail store, or a health-and-wellness practice. Even if your business launches with just one employee – you – about 20% of all small businesses will eventually have at least one more employee. One of the most important tools for strong employee relations is the performance review.
In this overview, you’ll learn how to create an effective performance program and build it into your operations. By creating a performance review program based on these insights, you’ll have a structured tool for employee development and retention that helps you and your team grow stronger together.
What is an employee performance review?
Hiring great employees is just the first step in building a strong team. You’ll also want to create lasting employee engagement and build loyalty while addressing areas for improvement. To do this, you’ll need a roadmap that lets you and your team members understand how their work impacts your business.
That tool is a performance review. It’s a way to evaluate your employee’s job performance, set future goals, and discuss opportunities for career development. It’s also a time to acknowledge and celebrate work done well while opening the door to advancement and growth.
In a best-case scenario, performance reviews can become a key tool for professional development, achievement, and engagement that energizes your team members. If an employee isn’t meeting goals and expectations, performance reviews give you a way to explain, point by point, why you may need to make changes or let them go.
They’re a vital tool to ensure that your team’s work – how they spend their time and your resources – is aligned with your business’s goals, objectives, culture, and values.
Why do you need performance reviews for your small business?
When done consistently and well, performance reviews become an actionable tool for individual and collective improvement. Unfortunately, many employees dread the review process because they’ve had past experiences with inconsistent feedback, unclear goals, and overall negative performance reviews.
You can make this process better. With a consistent performance program, you can identify strengths and aspirations among individual team members, foster growth and loyalty, create a stronger and more efficient team, and move your business forward.
Performance reviews can be used for:
- Employee development: With performance reviews, you can identify strengths and areas for improvement, provide and receive regular feedback, and communicate new goals and benchmarks for continuous learning and success.
- Employee retention: Used consistently and well, performance reviews can significantly impact your employees’ morale and retention. They offer excellent opportunities to communicate how valued they are as people and employees, recognize achievements, and learn more about their goals and potential for the business. It also ensures that your employees feel safe about addressing concerns within their roles and finding workable solutions together.
- Goal alignment: Regular performance reviews let your employees know your business’s goals, opportunities, and challenges and how their work aligns with and supports your business. Performance reviews can also identify talent gaps that need to be addressed.
With performance reviews, you can help employees develop career paths within your business that spark their interests and leverage their skills while also strengthening areas where they’re less confident of their ability.
What are some performance review best practices?
Although human resource management can be one of the most challenging aspects of owning a business, the performance review can be a powerful tool that makes keeping a great team easier.
Despite their importance, effective performance reviews can take time and effort. This is mainly because you have limited time and may not have human resource experts on your team. Still, employee performance reviews play an essential part in your overall business success. Your business’s ability to thrive directly depends on having a trained, informed, and engaged team – and it’s key to make time for them.
The best performance review programs are conducted regularly. For example, every six months or annually for current staff.
Here are some performance review best practices:
1. Be consistent
It’s not enough to hire and train employees – setting up a schedule for regular performance reviews is essential. In large businesses, the human resources department may take the lead on this, but for your small business, this responsibility will be yours and any additional managers who have staff reporting to them.
Each time a new hire comes on board, schedule the first performance review and any follow-up meetings for the year – that way, you are integrating them into your business operations. Scheduling performance reviews in advance also ensures that they don’t fall through the cracks – and if you have managers who will be responsible for giving reviews, make sure they schedule them as well.
2. Prepare for the reviews
When all is going well, it’s easy to communicate that to your team members. The hard part is when a team member is struggling. Because you need to handle all parts of the conversation with honesty and professionalism, it’s also crucial to take time to train for your performance reviews. This will be one of the most essential human resource investments that you’ll make.
Whether you’re conducting the reviews yourself or have a team of managers who will do them, you should learn how to conduct performance reviews effectively. You can bring a human resources consultant in, join an online workshop with your management team, or choose any other avenues to learn this critical skill. Then, practice creating and giving performance reviews – it will be time well spent.
As each employee’s review time rolls around, spend time putting together a thoughtful, thorough, and helpful performance review. There are many free templates available, like this one from HubSpot, and they can be customized to your business and for each employee or role.
3. Offer constructive feedback
When you hire new employees, their responsibilities should be clear to them and you. As part of the performance review, you’ll evaluate their work against the goals and benchmarks you communicated at the time of hire and during any subsequent meetings.
As part of the performance review process, you must provide thoughtful and constructive feedback that is ideally matched by data or other proof against metrics. For example, if a goal was set the previous year for an employee to increase their sales by 10% and they achieved an eight-percent increase, be prepared to offer insight as to what went right, as well as what the employee could do to reach the goal.
It’s important to note that this should be a two-way discussion – ask your employee for feedback regarding what they felt may have been a barrier to achieving the goal. You’ll often find relatively simple solutions, including a new laptop, software program, or additional training. You can also ask your employees if there’s any way you can support them more or in a different way.
The review should be a time for open, honest, and thoughtful discussion – and you shouldn’t be saying anything that comes as a surprise to your employees. Additionally, although a regular performance review is a good tool for feedback, it shouldn’t be the only time you give it.
4. Set and communicate clear expectations
If you went to a personal trainer to improve your health and the only guidance they offered was that you should work out, you might have difficulty achieving your goal. This advice offers no plan, benchmarks, or clear end goal, and it doesn’t give any information about what kind of exercises to do, how often, or what types of changes you should look for in your physical health and well-being.
Similarly, it’s essential to give your employees clear goals, expectations, and benchmarks so that you can jointly find solutions to the challenges they may face along the way. The metrics you develop will vary based on your business and industry, the different roles that your employees have, whether they’re aiming to advance within the business, and more. Even still, there are useful employee metrics that can be adapted for your business.
Specific, measurable, achievable, relevant, and time-bound (SMART) goals are always helpful for your employees and your business.
Make sure that roles and responsibilities are clearly defined. If and when there are changes, such as a new hire, losing a team member, or a promotion, communicate honestly with your team on how these events impact their roles, goals, and benchmarks.
5. Encourage employees to keep track of their progress toward goals throughout the year
It’s important to remember that employee performance reviews are more than just a tool for you to evaluate your team’s performance. Your employees now have a tool to guide their own success.
It’s also a good idea to ask your employees to track their performance throughout the year and let you or their managers know about any issues or barriers they are facing. This two-way dialogue ensures you know any problems before they build up and puts you in a better position to offer meaningful and impactful solutions. This also spots high achievers who may be ready to take on new responsibilities or promotions that may come up.
6. Create a culture of continuous improvement
Once you’ve discussed a performance review with an employee, check in regularly and offer guidance, tools, training, and other support to reach their goals. This will guide them on their path and give you insight and additional opportunities to address challenges. Be sure to set up a mechanism for you and any managers to track progress toward benchmarks and goals and share this information with your employees as well.
Think of this as an opportunity to run a performance review of your business. Be open to ideas for improvement, feedback, and employee suggestions about your business. As your business expands, you may move further and further from your customers, so listen to the team you’ve built, cultivated, and trusted with your business, and show that you value their feedback.
Performance reviews help you achieve your goals – the right financing can, too
Committing to a performance review program isn’t just another item on a long to-do list: It’s setting the stage for strength and growth for individual employees and your business as a whole. It’s one of the best investments of time that you can make, and you don’t have to do it all yourself – if you need support, Pursuit can help.
Pursuit is a leading small business lender serving businesses in New York, New Jersey, Pennsylvania, Connecticut, Nevada, Illinois, and Washington. We offer resources, business advisory services, business loans, and a line of credit for working capital, commercial real estate, equipment, and much more.
We’ve supported thousands of small business owners in getting the funding they need to build their teams and achieve their goals, and we can help you, too. Contact us today to learn more.
