The Importance of Small Business Workforce Planning

Small business owners juggle multiple mission critical processes, therefore workforce planning often gets put on the back burner. After all, when you’re trying to keep your business running, you focus on immediate issues–not staffing needs three years out.

This is unfortunate because a strategic plan is invaluable. Do you own a small business? You can use the same workforce planning models that large organizations use to manage human capital resources. If you already have a business plan, aligning the human capital component will give you a framework for hiring and developing talent. Bottom line? It will save time and money in the long run.

What is workforce planning?

Workforce planning (also called labor forecasting) is a structured process for identifying current and future staffing requirements to ensure the company can meet its business goals. The plan outlines human capital solutions for multiple scenarios. Once an organization identifies the needs, it creates and carries out a plan to meet them. As business conditions change, the company adjusts the plan accordingly.

What are the objectives of workforce planning?

1. Ensure the company has the right talent, in the right roles, at the right time
2. Develop employees to assume leadership positions as they are needed (succession planning)
3. Keep good employees at the organization
4. Ensure the workforce can overcome unforeseen challenges
5. Enable the workforce to capitalize on new opportunities when they arise

Strategic workforce planning examples

Let’s discuss an example of a small business–a 30-employee salon/day spa–considering the staffing needs for one part of their 5-year strategic plan. The owner has a roadmap to phase in new services as the business grows. The goal is to increase revenue and customer longevity. One of those services is massage. This leaves the owner with several choices regarding staffing for the new service: 1. Hire a massage therapist as a W-2 employee. 2. Sponsor massage therapy training for an existing employee. 3. Contract with one or more freelance massage therapists.

Weighing the options

Each route has its advantages and disadvantages. Contracting with a freelance therapist would be the quickest option and allow the owner to test the new service without committing to a W-2 employee. In addition, the owner could evaluate various therapists and see which one works best with the team. Hiring a W-2 employee could be less expensive in the long run but the evaluation process is generally longer. Finally, training a staff member (a star employee with a large clientele) who wants to expand their skills could take up to two years. However, the employee may stay with the company longer because the owner has invested in their professional development. Secondly, suppose the existing employee has dozens of loyal customers who may switch massage therapists from a competing provider if they could use someone they already know and trust.

Photo by Yan Krukov on Pexel

Refine the plan over time

Once the owner makes a hiring decision, she will monitor the results. Let’s suppose she hired a contractor for a 6-month period and they turned out to be a great fit for the team. Furthermore, adding the new service boosted revenue 5%. At this point, the owner could offer the freelancer a permanent position. In addition, she could sponsor training for an employee who wants advance their career with an additional skill.

Every business has difference job roles and talent needs that affect workforce planning. Let’s say a manufacturer determines that they need a forklift driver the following month. In this case, they could train and certify an existing employee in a day or two. Perhaps the manufacturer only needs a forklift driver occasionally. In this scenario, the company might hire a temp with forklift certification when needed.

These are two examples of staffing decisions aligned with the business plan around one job role. A small business workforce plan would include all staffing decisions for all positions as aligned with the business plan and goals.

Workforce planning is forward-looking. It anticipates the human capital needs for possible futures.. Therefore, a comprehensive plan would include multiple possible scenarios. As business conditions change, the business adjusts the plan accordingly.

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Why don’t more small businesses do workforce planning?

As mentioned previously, a small business owner or HR director has a wide range of responsibilities which often take priority over labor forecasting. Nevertheless, workforce planning is just as important for small companies. They face the same hiring and retention challenges as larger companies.

How does the lack of workforce planning harm a small business?

When leaders manage talent reactively, rather than proactively, it leads to productivity slowdowns and shift coverage gaps. Suppose the manufacturer discussed previously didn’t plan ahead for the forklift driver. If they only realized the day before, it could delay operations until an employee was trained. Even a one or two day lapse in productivity can be disastrous for a company with tight margins.

In roles that require more training, reactionary hiring can leave positions unfilled for weeks or months. Initial problems compound. For example, the quality of customer service could decline due to short-staffing. This could prevent customers from returning. Even worse, unhappy customers could leave negative reviews online which could discourage new customers. Moreover, even one unfilled role can lower morale across the team. Low morale can increase employee turnover. No small business can afford to lose its best employees in today’s competitive labor market.

Does your small business do succession planning?

Lack of planning is a liability regardless of the reason for the staffing shakeup. For example, having a key leader retire with no replacement ready in a 20-employee business has a greater impact than in a 1000-employee company. But a small business that starts preparing for the executive’s retirement five years in advance could have a qualified leader ready to move into the role immediately upon the former leader’s retirement. Imagine how much more effective they would be if they already knew the business inside and out. It would be a tremendous advantage if they had experience working in all of the business operations over the training period.

Certainly, the small business owner that makes time for planning will see it pay off in spades:

• With a long term hiring plan, you can nurture passive candidates and expand your talent pipeline–which results in better-fit hires when positions open up
• Creating (or improving) training programs can attract more job applicants, boost productivity, improve retention and spur employee engagement
• Filling skills gaps can accelerate the pace of growth and make the organization more agile and resilient

Workforce Planning for Small Business

Here is a five-year workforce planning checklist:

Identify business objectives

• Planning to target new markets?
• Introducing a new product or service?
• Working to meet DEI goals?
• Opening a new location?
• What is the expected pace of growth and how will that affect staffing needs?
• How will industry changes and economic conditions impact the business?

Audit current workforce in light of business objectives

• Do we have the skills we need?
• How are the demographics changing?
  • How many executives (if any) plan to retire in the next five years?
• Which employees do we want to develop for future leadership?

Build a hiring plan

• What positions do we need to fill for the next five years?
• Which roles can be filled internally?
• Where will we source talent for the other positions?
• Would it make sense to outsource some functions or contract with freelancers?
• What is our hiring budget?
• How do we attract a diverse group of applicants?

Workforce planning process steps for a skills audit and training plan

Let’s discuss the workforce planning model for assessing skills. Of course, you can modify this checklist for your business and talent needs.

• Create an org chart
  • Identify the functions performed by each team
  • Match skills to tasks performed
  • Identify which employees have special certifications or experience
  • Evaluate whether your staff’s current skill set is meeting your needs
• List the skills needed to execute your business plan for the next five years
• Interview each employee to discuss career advancement options and goals
  • Identify employees for upskilling and cross-training
• Outline career paths within your organization
• Identify your training budget
• Outline a training program aligned with the business plan and budget–it may include formal training, self-guided training, coaching, and mentoring

Workforce planning, also known as strategic workplace planning, is the process of analyzing, forecasting and planning workforce supply and demand. It involves reviewing current staff, examining current and future personnel needs and identifying gaps between the supply and demand. By identifying gaps, organizations may plan effectively to ensure their organization has properly skilled employees in the correct roles. This helps support the organization in maintaining efficient operations and achieving its goals. (Indeed)

In conclusion

To prosper in a competitive and unpredictable environment, small businesses must innovate and adapt faster than ever. Though large companies have many advantages, small companies with a talented workforce can often pivot faster than a large firm with layers of bureaucracy. Use workforce planning to take your business to the next level.