Human Resources – Challenging the SME Market

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The success of small to medium-sized enterprises (SMEs) is often viewed as an indicator of overall economic health. Moreover, businesses with less than 250 employees may be simpler to manage than multinational with companies having thousands of employees. Consequently, the matters of scale result in a different mix of challenges. However, there are many peculiar challenges that businesses face with implementing human resources (HR) systems and policies in an SME. The issue prevails because, unlike large organizations, SMEs tend to take HR issues and concerns for granted and ignore them either partially or fully. In fact, they only take action when matters have reached their peak thus the scenario becomes out of their control. Moreover, HR matters are more complicated than accounting which can be rectified by scrutinizing and correcting the bookkeeping issues.

Consequently, small to medium-sized enterprises have to adopt best HR practices and procedures to ensure that they accomplish their company goals and business objectives. You do not need to have huge funds as long as you have the right people at the right seats, putting processes in place at the right time. Here are some of the common HR issues prevailing with SMEs:

1. Absence or Lack of HR Department in SMEs

Most of the small-sized businesses and some of the medium-sized enterprises have no HR departments. Mainly because they perceive that having a fully functional HR department is an additional cost. Hence, in the absence of an HR department, workers tend to solve workplace issues themselves which can result in chaos and issues among the workers. Therefore, they are often vulnerable to the concerns affecting their morale and job motivation.

2. Managing Talent

Lack of talent management is another big issue prevailing in SMEs which ultimately affects the following HR processes:


The HR process begins with recruiting the ideal candidate for a position. Remember, the quality of individuals you hire will eventually determine the success or failure in the long term. SMEs typically start recruiting the referrals; their relatives and people they know or individuals related to shareholders. This is okay as long as the merit is the base on which the people are employed. However, SMEs normally prefer relatives and friends with the assumption that they are easy to deal with and willing to work for them at a lower rate. However, the downside of this practice is that the hired friends and relatives often lack requisite skills and expertise and can cost a lot to the company in the long run. Moreover, there is usually no formal recruitment process in family-owned small businesses, especially acquired by succession or inheritance.

Training and Development:

In today’s developed business societies and with the current market scenario, organizations should acquire an adequate pool of skilled and experienced employees. Therefore, large companies demonstrate concrete efforts to not only hire smart and skilled people, but also upscale their abilities and potentials by making them go through various training and development programs. However, SMEs often tend not to rely on external training and development programs, mainly owning to budget constraints. Therefore, either they conduct on-the-job or in-house training, which often produces lower results or provides no training at all.

Reward and Remuneration & Performance Appraisals:

Reward and remuneration is another essential HR aspect that all organizations, irrespective of their size and nature, should effectively use to motivate their employees. They must have a transparent and dependable system of setting the salaries for their staff. However, many SMEs either have a vaguely structured reward & remuneration system and performance appraisals or none of them at all. This is primarily because other structures like a job description for different roles, competency framework, and values for the different roles are not well-defined. Moreover, small business owners or managers are mostly busy or are not well trained to handle more than average ‘performance’. In fact, most SMEs are not too focused towards scale and growth to tackle appraisal processes.

Talent Retention:

Retaining competent employees at the junior level is often a big challenge with SMEs. This junior level mostly consists of workers with functional skills like electricians, field salespersons, etc. This class is significantly mobile and rarely available in job shifts recurrently and may even quit working without giving prior notice. The unexpected loss of employees sometimes affects SMEs, especially during the seasonal days. Moreover, vague role definitions, lack of career prospects, or any perceived unfairness in the remuneration or appraisal system can trigger thoughts of attrition among workers. HR managers should be aware of employees’ engagement at all levels of the enterprise and their retention drivers.

3. Maintaining the spirit of innovation and entrepreneurial culture

Bursting with excitement, aspirations, expectations and immense potential, SMEs in their starting days often cater business culture that is fun, fast-moving, innovative and entrepreneurial in nature. Such culture is mostly comprised of young, energetic team members who show great coordination and dedication, work closely with each other, and frequently interact with their seniors and business founders. However, SMEs tend to lose such spirit as the business begins growing and becomes mature. Therefore, due to conventional ways of business management, they often fail to grow further. In fact, at some point it becomes a challenge to sustain in the competitive market.

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