- The critical role of workplace culture in small businesses.
- Key terms and laws affecting small business HR, such as ACA and COBRA.
- The importance of diversity, equity, and inclusion for strengthening your business.
- Tools like eNPS and Employee Skills Matrix for assessing and improving employee engagement.
- How Acquira can offer specialized guidance in assessing the cultural aspects of business acquisitions.
No business can be successful without its employees – so making sure you have a positive workplace culture is absolutely crucial to success.
For Acquira, the term People and Culture is the same as the Human Resources (HR) department – with one crucial difference: we don’t like to think of employees as resources.
If people are viewed purely as resources, their potential for creativity and innovation might be overlooked. Businesses thrive when their employees are encouraged to think outside the box and offer fresh perspectives. Treating them simply as resources can hinder this potential.
Every business has its own culture. Whether it’s an exciting workplace where people feel respected and encouraged to share ideas, or it’s a place that causes people to become cynical and unmotivated where they do little more than put in their hours until they can go home.
Why People and Culture Matter
Workplace culture holds immense significance in small businesses for a variety of reasons:
- Employee Retention: In a small business, every employee counts. A positive workplace culture can make employees feel valued and satisfied, reducing turnover and the costs associated with hiring and training new staff.
- Employee Engagement: A strong culture encourages employees to fully engage with their work. This is particularly critical for small businesses where individual contributions can substantially impact success.
- Team Collaboration: A small team means that collaboration is not just nice to have; it’s necessary. A healthy culture fosters good communication, teamwork, and collective problem-solving.
- Client and Customer Relations: In many small businesses, employees wear multiple hats. Someone who is not in a ’customer-facing’ role may still interact with customers, so a positive internal culture can translate to better customer service.
- Adaptability: Small businesses often need to be nimble and adapt to market changes quickly. A positive culture can foster an environment where change is embraced, not feared.
- Innovation: Positive workplace cultures often encourage innovation and creativity, which can be critical for small businesses looking to grow or differentiate themselves in the marketplace.
- Reputation: Word-of-mouth can make or break a business in smaller communities or industries. A strong, positive culture can enhance a company’s reputation, making attracting talent and customers easier.
Key People and C Terms
Now let’s look at some important people and culture terms that we use frequently here at Acquira:
|Affordable Care Act (ACA)
|Often known as “Obamacare”, the ACA was enacted in 2014. It left the structure of Medicare, Medicaid, and employer-paid healthcare relatively unchanged (although access to Medicaid was greatly expanded), but radically overhauled the individual market. A good, fairly comprehensive discussion of it can be found here.
|COBRA (Consolidated Omnibus Budget Reconciliations Act Insurance)
|COBRA insurance for healthcare is required for businesses with 20 or more full-time and full-time equivalent (FTE) employees: an employee working 30 or more hours a week is considered full-time. COBRA plans typically require the employee to pay 100% of the premium, and usually last up to 18 months. It allows the employee to stay in the same network and avoid having to start a new plan with new deductibles. (Other options are short-term individual healthcare or the ACA exchange, which a terminating employee can access right away.)
|Diversity, Equity, and Inclusion (DSG)
|Many, many studies have shown that diversity will strengthen your business, in large part because the business will not be confined to an echo chamber where everyone is in agreement and opposing points of view are not heard. Moreover, you have a broader pool of talent to choose from when you do not tend to restrict yourself to a single gender, race, sexual orientation, etc.
|Employee Engagement and eNPS
|Engaged employees perform better, experience less burnout, and stay with their organizations longer. Employee engagement is defined by the degree to which an employee: Feels committed to an organization, Identifies with an organization, Feels satisfied with their job, & feels energized at work.
eNPS stands for Employee Net Promoter Score, and is a survey-based method for measuring employee engagement. The score is a number between 100 and -100 that shows how likely an employee is to promote the business to job seekers. It’s interesting that net detractors of a company and net promoters of a company have a much greater influence on job seekers than the unimpressed middle ground (perhaps dismissed as wishy-washy).
Employees are asked to rate how likely they are to recommend working at the company to other people, on a scale of 0 to 10. Employees who rate their company between 0 and 6 are classified as Detractors; those who give it a 7 or 8 are Passive and are excluded from the score; and those who give it 9 or 10 are Promoters.
The score between 100 and -100 is arrived at as follows. Assume the survey, which just asks the one question, is sent to 100 people and 30 of them fall into the Detractors group: collectively assign them 30%, because 30% of the work force are Detractors. Ignore your Passives (let’s assume 30% of the group were Passives). That leaves the remaining 40%, who are Promoters.
The formula is: (Percent Promoters – Percent Detractors) X 100 = Employee Net Promoter Score. In our example, that’s (40% – 30%) X 100 = 10, on a scale that goes from 100 to -100.
The NPS was originally developed by Reichheld, Bain and Co., and Satmetrix in the 1990’s for customers, rather than employees, and is trademarked.
|Employee Skills Matrix
|The Employee Skills Matrix breaks down a specific major task in the business (such as a Rough-In in HVAC new construction) into its sub-tasks (such as Ductwork) and, within that, even lower-level tasks such as Lay-Out Insulation, and Shearing. This is useful for all kinds of reasons. The first reason is that it’s the basis for business process redesign, since you need to understand the components of activities in order to improve upon them. A second is to show techs what skills they will need to master to advance in the business. The third is to demonstrate to employees with sub-optimal performance appraisals where they may need to improve.
The fourth reason that the Employee Skills Matrix is so useful is that it allows you to spot and remedy your business’s vulnerabilities. To do this you’ll need to assess your techs on a scale of 1 to 10 on the lowest-level activities in the skills matrix. You might find there is only one person who can perform an activity or, worse, there are activities where no one has adequate proficiency.
Understanding the actual work your employees do is crucial for getting buy-in on process improvement during the post-acquisition phase. For more information on how to get the most out of your small business, check out our ACE Framework.
|FICA and FUTA
|FICA is a payroll tax paid by both employer and employee that includes social security and medicare benefits. Under FICA you must withhold 6.2% of the first $128,400 of an employee’s wages (2023 rates) for social security and a matching employer amount. And you must withhold 1.45% of the first $128,400 of an employee’s wages for medicare and a matching employer amount.
FUTA is a federal payroll tax paid by just the employer to fund unemployment insurance. (Depending on the state in which your business operates, you might also have to pay SUTA). FUTA 2023 rates are 6% on the first $7,000 of an employee’s earnings. But you may also find your FUTA rate reduced by your contributions to state unemployment programs: the minimum FUTA level is just 0.6%.
|Full-Time, Part-Time, and Full-Time Equivalent
|An employee is classified as part-time if they work less than 30 hours a week (although, in fact, a full-time employee might work quite a bit longer than 30 hours). Certain government calculations may require that you provide Full-Time Equivalents (FTEs). This is done by simply adding up the number of hours per week that all your part-time hourly employees work, and then dividing by 30. (Example: three part-time employees work 10 hours, 20 hours, and 24 hours a week respectively. The calculation is (10+20+24)/30 = 1.8 FTEs.)
Most employees who receive an hourly wage are paid overtime (1.5 times hourly rate) for hours worked in a week over 40 (not the 30 used for the FTE calculation). To qualify, these employees must be classified as non-exempt. This is not very helpful, as the definition of ’exempt’ (not eligible for overtime) is defined under the Fair Labor Standards Act (FLSA) and in some cases modified by state laws. You will need to know the laws that apply for your state.
|Healthcare: Small Group Health Insurance
|Small Group Health Insurance is an umbrella term that covers the following types of plan:
High Deductible Healthcare Plan – A low-premium, high-deductible account, often with the employer paying premiums and the employee responsible for deductibles. There are legislated minimum and maximum deductible amounts, and also maximum permissible out-of-pocket amounts. It is often accompanied by a Health Savings Account to which the employee or employer can pay pre-tax premiums, which are also untaxed when used.
Health Maintenance Organization (HMO), Point of Service (POS), Exclusive Provider Organization (EPO), and Preferred Provider Organization (PPO) – These plans are listed by the least expensive to most expensive. They differ by the size of their network, whether out-of-network services are covered, and whether specialist services can be accessed directly by the patient.
Section 125 Premium Only Plan (POP) – Your healthcare broker can set this up for you. It is a common cafeteria-style benefits program, where employees pick the benefits, taxable and nontaxable, that they wish to receive and have premiums deducted from their paychecks. Section 125 refers to the section of the IRC that authorizes this treatment. Employees and employers can save on income tax and payroll taxes, both FICA and FUTA.
QSEHRA – Pronounced Q-SARAH and stands for Qualified Small Employer Health Reimbursement Arrangement. It’s available for businesses with fewer than 50 employees and allows them to reimburse employee medical expenses without offering group health insurance. It requires less work of the employer, and can be set up at any time of the year. Reimbursements are tax free to both the employer and employee. 2023 contribution maximums are $5,850 for an individual and $11,800 for a family. For more details, see the Taxable Benefits chapter of the P&C Framework.
Confused yet? Know that there are still more plans out there we haven’t covered!
|Job vs Position
|Job and position are used interchangeably, and here we’re going to use position. The people who occupy positions are known as incumbents. It’s possible for more than one employee to be in a position, where their duties are identical. For example, imagine a position with two full-time employees, and also a vacancy for someone who would work half-time. This job/position has full-time equivalents of 2.5, with 2.0 FTE filled, and 0.5 FTE empty.
Don’t overthink this. The org chart could have been drawn up just as easily to show a separate position box for each incumbent or vacancy.
Job Description, Position Description
|These terms are used interchangeably. Here at Acquira, we call it a job description, or JD. It is a document that describes the scope of a given position and, often, the competencies required to perform it capably.
A job description should give the employee clarity on what activities they should be performing, and what constitutes an ideal outcome of these activities. It is critical to many operational and people activities. For example, an employee who has performed the activities described in their job description in an adequate manner will receive an adequate performance appraisal (PA) that describes how their achievements fell short of excellence. This PA will drive a salary increase, and perhaps a bonus some months later. If the shortfall stemmed from insufficient training, this should be the trigger for enrolling the employee in additional training.
Having clear job descriptions for each position within your company is an important step in the process of systematizing and growing your business from a start-up to to a grow-up. For more information on this process, check out this article.
Performance Improvement Program (PIP)
|The PIP has three objectives. The first is to help a struggling employee who risks loss of his or her job, because it’s likely you want to demonstrate a culture where the business “has the back” of individual employees. There is generally some trauma attached to being let go, and it can have a destabilizing effect on other employees (or they may be relieved). The second is to improve performance for the good of the company. The third is to cover yourself so a termination is a clean break and no legal action follows it.
A PIP is a formal, documented and private process with a 30-, 60- or 90-day timeframe. It is aimed at correcting performance to an expected, well-defined standard. It’s described in detail in the P&C Framework.
How Acquira Can Help With People and Culture
The Acquira Certified Enterprise (ACE) Framework is a change management system designed to grow businesses, with a special emphasis on culture, systems, and servant leadership. The ultimate goal is to help businesses transition from owner-operated to management-run. The company does not need to rely on a single person (the owner) to succeed.
Through ACE, business owners receive cultural support for a 90-day transition towards becoming management-run. The shape that this support takes will look different for every business. Once a business has a strong culture and capable leadership in place, everything else becomes easier. More importantly, the business becomes more profitable.
Acquira believes that culture is one of the most crucial metrics for a successful acquisition.
Even if a company has strong financials, a poor workplace culture can lead to problems like low employee morale, high turnover, and decreased customer satisfaction.
Suppose the culture of the target aligns well with the buyer’s values. In that case, moreover, it increases the likelihood of a successful integration post-acquisition, leading to higher employee satisfaction, better productivity, and enhanced customer experience.
Are you a small business owner who is focused on improving workplace culture? If so, reach out to the experts at Acquira to see how we can help you maximize your chances of success by improving people and culture.
If you’re just embarking on your journey toward business ownership, the first step is our MBA-level M&A training: The Accelerator. The Accelerator will teach you everything you need to know to acquire a business within seven months. It includes an active community of fellow entrepreneurs, unparalleled support from Acquira’s team, and regular access to acquisition experts at the forefront of the acquisition space.
But space is limited. To see if you’re eligible, simply fill out the form below and we will be in touch.
- Employees are the most important resource for a small business.
- Understanding HR terms and laws is essential for compliance and employee welfare.
- A diverse workforce broadens talent pools and prevents echo chambers.
- Employee engagement directly correlates with productivity and business success.
- A strong culture is vital not just for daily operations but also for business growth and acquisitions.
Acquira specializes in seamless business succession and acquisition. We guide entrepreneurs in acquiring businesses and investing in their growth and success. Our focus is on creating a lasting, positive impact for owners, employees, and the community through each transition.