Your people are your greatest resource. One way to be sure your business will succeed is to look after your employees. Treat your employees fairly, manage them well and provide them with opportunities and they will help you to achieve your ideas and ace your business plan. Treat employees badly or with mediocrity and they will underperform or leave.

One of the questions that plagues SMEs is ‘when is the right time to devote money to human resources?’ Human resources is important to any business from its inception. In this blog, I’ll be taking a look at why.

What exactly is human resources?

Human resources (HR) is the umbrella term used to describe the management and development of employees in an organisation. Ultimately, it’s all about increasing employee performance.

Traditionally HR focused on hiring, firing and the old-school annual pay review. These days HR has been positively reframed, covering a much wider remit. Basic functions of HR include recruitment, and onboarding, managing payroll and benefits, holiday management, training and development, employment law compliance and safety compliance.

In addition, HR today plays a significant role in developing positive business culture and improving employee engagement and productivity, both of which are critical to business success. Employee wellness and personal development are also increasingly recognised as essential aspects of HR.

Why is HR so important?

In the small business HR is easily overlooked. Many entrepreneurs get their businesses off to a flying start, but grapple with people management as the business starts to flourish. Managing staff takes time and it requires specific skills. HR is an area of expertise many business owners lack.

Regardless of skills, for many entrepreneurs, the value of HR in business isn’t always immediately apparent. With just a few employees, business leaders feel like they have their finger on the pulse when it comes to the people they hire and manage.

But as a business grows, leaders often find there just isn’t time to deal with day-to-day people management and recruitment and the focus on people can easily get lost. This is the costliest mistake a small business can make. Comprehensive HR is crucial for success. Without a talented team, your business falls down.

HR covers so much more than hiring, firing and pay reviews. It encompasses all aspects of people management, communication and is pivotal in building a positive culture. Get HR right and you are half way to making your business dreams a reality.

Consider the consequences of poor HR. When employees don’t feel supported, aren’t being given opportunities, work long hours, and so on, their motivation to perform is impacted. Under-deliver on effective HR and it has a knock-on effect on your bottom line.

Reputation as an employer is influential in attracting talent. It also impacts on customers. Take Uber as an example – plagued by a string of HR catastrophes from sexual harassment cases to ignoring employee complaints, the resulting bad publicity has undoubtedly deterred many from working there or from using their ridesharing services. Bad HR has destroyed Uber’s employer brand.

What are the main functions of HR?

Recruitment and onboarding

Finding the right people to work in your business can be difficult. The recruitment process can take months and getting it wrong can be costly. Finding a good fit when it comes to recruiting talent is one of the most important aspects of HR. Hire too many people, too little or recruit an inappropriate candidate and your business will suffer.

The importance of onboarding is perhaps the most underestimated part of the recruitment process. What is onboarding? Not to be confused with orientation, onboarding refers to the whole experience of hiring, welcoming, orienting and engaging a new recruit and assimilating them into the culture of your organisation.

Poor onboarding can have a hugely negative impact and leave talented new employees disengaged from the word go. Good onboarding maximises employee engagement and increases retention. For guidance, see the good-practice recruitment and induction process guide by the Chartered Institute of Personnel and Development (CIPD) here.

Performance management and training

Performance management, training and development are a big part of HR. Almost all employees will have some weaknesses in their workplace skills. Performance management helps to address those issues. An effective performance management system enables managers to offer support to employees who need it and identify future superstars.

Learning opportunities contribute to better employee engagement, increased productivity, reduced employee turnover and add to a more positive culture.

Comprehensive training and personal development help to reduce any weak links in the company (including managers). Investing in your employees strengthens your organisation and gives your business a competitive edge.


Positive business culture is no longer a nice-to-have – it drives employee engagement, job satisfaction and staff retention, and it defines business success. HR plays a key role in developing, reinforcing and changing the culture of an organisation. Pay, performance management, training and development, recruitment and onboarding and reinforcing the values of the business are all essential elements of business culture covered by HR.

Getting culture right isn’t easy. It requires a multi-pronged approach and needs consistent nurturing (read more about workplace culture in our report on The Culture Economy here). Essentially, HR plays a significant role in setting the right tone when it comes to company culture.


Every business requires effective communication to operate. Most businesses involve people and rely on a series of interactions with others. How communication occurs in a business is often defined by HR. Essentially, communication forms the basis of your culture.

Good communication mitigates misunderstandings, increases employee engagement, forms the basis for better client relationships, encourages innovation and creativity and helps to build a positive culture.

Legal and regulatory compliance

HR professionals have a full understanding of employment law and all of the regulatory requirements of a business when it comes to their people. This is a huge area and shouldn’t be underestimated. An unfair dismissal claim could be an expensive mistake.

Employing a dedicated HR professional isn’t a luxury for SMEs, it’s essential. It’s common for entrepreneurs to start out their business wearing the HR hat, but looking after HR and the complexities of employment law isn’t effective time management and it’s costly for the business when something goes wrong.

Business leaders should concentrate on growing the business and leave HR to the professionals. For a small business this may mean a part-time HR manager to begin with or requirements can be outsourced. Having someone to deal with everything employee related from absence management, staff grievances, holiday entitlement, pay, to maternity and paternity policies will ensure your business is kept compliant.

For more information on the basics of hiring and managing people see the Help for small firms guide by the Advisory, Conciliation and Arbitration Service (ACAS) here.

To find out more about making HR processes easier sign up for Breathe’s free 14-day trial here.

Join the breathe culture pledge