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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How to Keep Employees Motivated During the Holidays

May 24, 2017 No Comments

With the holidays approaching, productivity slips, attention spans shorten, and minds wander toward shopping lists and family gatherings. You’re not immune to the festive distraction either, and if you’re not careful, your own holiday spirit can signal your team to slack off too. Here’s how to keep employees engaged and motivated through the season without turning into Scrooge.

How Pleasant Places Turned Rapid Growth Into 42% Gross Margins

September 28, 2026 No Comments

Founded in 1984, Pleasant Places built a reputation as a trusted commercial landscaping provider throughout the Lowcountry region. But rapid growth brings its own problems, and by the time company leadership reached out to Waters Business Consulting Group in 2017, Pleasant Places had grown from $10 million to nearly $18 million in annual revenue in just a few years — without the processes and infrastructure to support it. “I have been working with John Waters for around 8 years,” said Gilly Artigues, President of Pleasant Places. “I did a quick google search for a consultant that could help me and my company navigate through the obstacles we were facing during a period of rapid growth… John Waters called me in less than 2 hours. We spoke on the phone for well over an hour that day. After that, John didn’t rush into trying to get me to sign a contract or pay a fee. Instead, he took the challenges I told him about on our initial phone call and called me back a few days later with an honest take on everything and some ways he thought he could help. He impressed me with not only his knowledge and business experience, but with his genuine desire for my company to be successful.” Growing Fast, But Not Cleanly That kind of growth squeezed Pleasant Places’ profit margins and exposed gaps the company hadn’t needed to worry about at a smaller scale. There was no centralized ERP system to manage workflow, and accountability among the team was inconsistent. Pipeline visibility was murky, making projected growth hard to plan around, and a high cost of capital was eating into cash flow. The company’s mission, vision, and core values weren’t clearly articulated or aligned with ownership, and roles and responsibilities across the team were disorganized — all classic growing pains for a family-owned business scaling past what its original structure was built for. Rebuilding the Business Underneath the Growth Waters Business Consulting Group started by analyzing Pleasant Places’ historical financial trends to build a model for controlling cost of goods sold, margins, and managing breakeven. The company now has significantly higher valuation. That model did double duty — it also gave lending sources the assurance they needed, which led to negotiated reductions in lending fees. From there, the team established systems to track labor hours and materials against budgeted estimates, and reworked the company’s pricing strategy so every estimate was built to hit the gross margins Pleasant Places actually needed. On the people side, the team identified leadership and management gaps in the organizational structure, created position descriptions aligned with a clearer reporting protocol, and helped guide a sensitive transfer of management responsibility from father to son with defined authority and autonomy. A full ERP system implementation — the industry platform Aspire — gave Pleasant Places real-time visibility into work in progress and trending margins for the first time. From $18 Million to Over $36 Million, With Healthier Margins The combination of pricing discipline, cost controls, and regular accountability meetings turned a low gross margin into an average of 42%. With clearer estimates and more confidence in their numbers, Pleasant Places has pursued new projects and maintenance contracts with far more conviction, growing top-line revenue to over $36 million. Beyond the numbers, the organization now has a clearly defined chart of roles and responsibilities, formalized core values and mission, and a stronger employee review process — all of which have improved accountability, culture, and retention. Employee polling reflects that shift directly: workers now see themselves at the company for years to come. The family management transition was completed successfully, lending relationships improved, and net operating income has shown dramatic improvement across the engagement. Growing Fast? Make Sure Your Systems Keep Up Rapid growth is a good problem to have, but only if the business underneath it can support it. If your company’s growth has outpaced its processes, pricing, or leadership structure, a free consultation can help map out the fix. Contact Waters Business Consulting Group to schedule your free consultatio

If You’re Too Nice, You’ll Hurt Your Business, Here’s Why

August 30, 2018 No Comments

Be nice. You’ve heard it since kindergarten, and for the most part, it’s solid advice. But when niceness becomes your default setting in every business situation, it can quietly sabotage you. Being overly nice can project weakness, attract the wrong people, and even breed distrust among the people you’re trying to win over. Here’s why the nicest person in the room isn’t always the most effective leader.