Business Education

The Hidden Costs of Retaining Bad Employees—and How Small Business Owners Can Fix It

Last week, we discussed how to deal with a backstabbing employee. But what happens when business owners don’t fire them, even though they continue to hurt their peers? Well, as you probably imagine, the results aren’t pleasant (and more than likely, horrible).

This seems self-evident, though sometimes, entrepreneurs choose to ignore the problem because everything else is all right. That’s a recipe for disaster, and can easily lead to bigger problems. So, read on to learn what’s in store.

Why Clinging to Underperforming or Toxic Employees Secretly Erodes Your Company’s Foundation

Running a small business means wearing many hats, but one of the toughest decisions is letting go of an underperforming or toxic employee. Many owners hesitate, hoping things will improve or fearing the hassle of replacement. Yet, clinging to “bad fits” can quietly erode your company’s foundation. According to research from Harvard Business School, a single toxic employee can cost a business far more than their salary—up to $12,800 in turnover alone —by driving away good talent. For small teams, this chronic drain often outweighs the short-term pain of firing.

Risks You Run

The risks are multifaceted and compounding. First, productivity plummets. A poor performer doesn’t just underdeliver; they drag everyone else down. Studies show teams with even one toxic member see 38% lower engagement and higher error rates. Good employees pick up the slack, leading to burnout and resentment.

Second, morale and culture suffer irreparably. High-performers notice when bad behavior goes unchecked—it signals that mediocrity is tolerated. Gallup data indicates disengaged workers (often spurred by toxic environments) cost the U.S. economy trillions in lost output, with small businesses feeling it acutely through voluntary quits. In fact, good hires leave at 54% higher rates around toxic colleagues.

Financially, the hit is brutal. Replacement costs for a departed star can run 1.5–2x their salary in recruiting, training, and lost knowledge. Customers notice too—sloppy work or rude service drives them away, damaging your reputation in a word-of-mouth world. Legally, ignoring issues like harassment or consistent underperformance risks lawsuits if they escalate, especially without documentation. In at-will states (most of the U.S.), you can terminate for any non-discriminatory reason, but delays invite claims of retaliation or unfairness.

Small business owners often delay for understandable reasons. For instance, “They’re nice,” “Hard to replace,” or “What if I can’t find someone better?” But as one expert notes, keeping them is a disservice to both the employee (trapped in a mismatch) and your company (stuck in mediocrity).

Rectifying the Situation for a Proactive Path Forward

The good news? You can address this decisively while minimizing fallout. Start with prevention through better hiring. Use structured interviews, skills tests, and reference checks to spot red flags early. Clear job descriptions and probation periods set expectations upfront.

When issues arise, document relentlessly. Track performance with specifics, including missed deadlines, client complaints, or policy violations. Issue verbal warnings, followed by written ones via a Performance Improvement Plan (PIP). A 30–60 day PIP outlines measurable goals, support offered, and consequences—giving a fair shot while building your case. Consult an employment attorney or an HR service early; small businesses without this support often face surprises under laws like the FMLA or anti-discrimination rules.

When Involuntary Separation Becomes a Necessity

If improvement doesn’t happen, terminate thoughtfully. Schedule a private meeting at week’s end (e.g., Friday afternoon) to allow time for processing. Have a witness (HR or trusted manager) present. Be direct by saying, “We’ve discussed these issues, and we’ve decided to end your employment effective today.” Avoid debate—focus on facts, express appreciation for past contributions, and outline next steps: final paycheck (immediate in many states), benefits continuation (COBRA notice), and property return.

Prepare a transition. Reassign duties, notify the team neutrally (“We’ve parted ways with [Name]; we’ll redistribute tasks”), and offer a neutral reference if warranted. Some provide severance (1–2 weeks’ pay) for goodwill, though not required.

Post-firing, reinforce culture. Use the moment to hire rigorously—seek A-players who align with your values. Many owners report relief and renewed energy after taking action; the “acute pain” of change beats the chronic drag.

In the end, firing isn’t failure—it’s leadership. As Inc. Magazine puts it, underperformers aren’t doing you (or themselves) a favor by staying. For small businesses, swift, fair action protects your team, customers, and bottom line. Act now, and watch your venture thrive.

Want to Accomplish More?

Do you want your company to grow faster and earn more while spending more time with your family doing everything you started your business to do?

We can make that dream a reality. Give us 30 minutes, and we will show you how to get your life back. Skeptical? Good! Put us to the test.

You can call us for your free appointment at 480-636-1720, or, if you prefer, send us an email. You can also visit us at Waters Business Consulting Group to learn more about us and the services we offer.

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Take a Page from the Disney Playbook and Elevate Your Customer Experience

September 12, 2025 No Comments

Disney recently held its annual D23 Expo. The entertainment giant boasted several new exciting things for its theme parks, but tucked silently in the fine print were a few unpleasant changes.

Learn this Uber London Quebec Business Lesson Right Now

October 4, 2017 No Comments

Uber just lost its operating license in London. Then, Quebec passed tough new regulations. That caused Uber to announce a cessation of operations starting next month. There are many cities, municipalities, and unions suing Uber. Their claim is the ride-share company isn’t restricted by the same rules as taxis and like services. However, Uber remains popular with the public. It provides a different experience and often for a lower cost. But, it is definitely learning taking on government regulations is no easy task. 4 Helpful Tips for Entering a Regulated Business Industry You might want to start a business to help people. And, that’s what many others do successfully. Although, if it’s in a heavily or even a moderately regulated industry, you’ll face several extra obstacles than entrepreneurs in different fields. The truth of the matter is, starting a business in any industry presents inherent risks. But, this certainly doesn’t mean it’s impossible. If you’re building a new social network, creating a tech-enabled food delivery business, or developing an artificial-intelligence translation tool, there aren’t many demanding rules to adhere to. But if your startup deals with issues such as health care, finance, or education, things can be rather more difficult. —MIT Technology Review It’s actually far from impossible. You just have to be realistic and pragmatic. In fact, you need to take many things into account before you jump into a regulated industry. After all, you’re chances of stumbling or outright failing are undoubtedly higher. That’s okay, if you take it as a challenge, you’ll probably get some worthwhile lessons along the way. Here are four helpful tips for entering a regulated business industry: Conduct extensive research. This should go without stating but sometimes the obvious really needs emphasis. You need to conduct a lot of research before you take step one. Knowledge is power and there’s nothing more damaging than ignorance. As the saying goes, “You don’t know what you don’t know.” And, that’s not a place to start. So, do all the research you can. Talk to people already thriving. Chances are excellent there’s already somebody, somewhere succeeding in that particular industry. Find him or her and personally reach out. Be upfront and honest about your ambitions. If you are respectful and open, they’ll be far more generous with important information. Start very small and scale up slowly. One bit of advice that works quite well in every industry is to start small and scale up incrementally. It’s very risky to jump right in, front-loaded with debt, and hope everything works out. So, start small, test the market, get to know it, and grow little by little. Keep abreast of all pertinent regulations. Regulations don’t necessarily stay the same. The rules can change at any time. Understanding and accepting this is key. Do yourself a huge favor and keep up with those changes so you aren’t taken by surprise. Have you built a business in a heavily regulated industry? What other advice do you have? Please share your thoughts and experiences by commenting! Interested in learning more about business? Then just visit Waters Business Consulting Group. [shareaholic app=”follow_buttons” id=”26833294″]

Startup Financing Tips You Can Use

November 14, 2017 No Comments

Startup financing is something that’s necessary but not always a welcome prospect. In fact, financing is typically one of the most difficult factors in any venture. It’s because raising money or applying for a loan is an unnerving process. After all, you don’t know what you don’t know. And, it’s that very ignorance which creates even more stress. But, with the right preparation, you can find the right startup financing. Startup Financing Sources Right now, there are good and bad signs in the economy. While tech companies are booming, retail chains are down. Of course, this is the natural cycle of the business world. So, don’t let headlines ruin your business dreams. Instead, focus on possible startup financing sources. Take a good look at what you really need first. If possible, bootstrap it incrementally. In other words, start off as a side gig. …for an entrepreneur starting out, it can be hard to sort through the many funding options available to determine which are most lucrative. While it would be ideal to line a roomful of investors out and let them fight it out for the honor of funding your business, that is often, unfortunately, not the reality. —Forbes.com If you don’t jump into full-time, you can grow it slowly. That means very little startup capital, as well as time. But, if you need to go another route, consider going through the small business administration. Or, take out a small personal loan. Obviously, if you have the cash, use it. Startup Financing Tips You can Use The problem many entrepreneurs encounter with startup financing, is taking a cavalier, shotgun approach. Put another way, they go after funding without a serious plan. And, that’s a recipe for disaster. Just trying to wing it will only invite chaos and confusion. So, here are some helpful startup financing tips you can use: Create a detailed business plan. Speak with an experienced business consultant about drafting a detailed business plan. This will reveal many things you might easily miss. Plus, it’s typically a commercial loan requirement. You need a clear roadmap and demonstrate your ability to monetize your idea. Seek advice from established businesses. Chances are excellent there are already people doing what you want. So, don’t let that be an intimidation or just look at them as the dreaded competition. Instead, seek out their advice and learn. Keep an eye on your personal credit score. If you do apply for a loan, your personal credit file will certainly be a big factor. Order your three credit files from Annual Credit Report.com. Then, go through each carefully to review for errors. Dispute inaccuracies and raise your credit score. Develop a good network with the right people. Networking is an invaluable resource. In fact, you’ll learn quite a lot from others. And, since that knowledge is readily available, there’s no reason not to tap into it. Outline a realistic budget and shop for financing. Finally, set a realistic budget and then shop for funding. Comparison shop and take your time. You’ll come out much better if you do and be thankful for your patience. What other startup financing options can you add to the list? Have you found or know more creative ways to get startup financing? Please share your thoughts and experiences by commenting! Interested in learning more about business? Then just visit Waters Business Consulting Group.