They helped you start your business. They worked with you side by side. Now your business has grown and their skill set is no longer adequate. If this sounds familiar, you are not alone.

The employees you hired when you were just getting started may not be suited to help you lead a multi-million dollar business. Should you layer them under new, more skilled managers or replace them altogether? Should you retain these people, and their important institutional knowledge, even if they are underperforming?

These are difficult issues, ones that can be exacerbated if you have done what so many entrepreneurs do, which is to hire friends and family. We strongly suggest that if you are going to hire friends and family, do it with your eyes open. Recognize that the time may come when the person has to be layered or worse yet, replaced.

Related: 7 Signs a Great Employee Might Be a Bad Boss

Unfortunately, any time you layer an employee, there is the risk of hard feelings. However, we’ve found that following the five tips below will increase the probability of a smooth transition.

1. Don’t promote automatically. The best widget maker is not necessarily the best manufacturing manager. Too often, entrepreneurs hire a widget maker (let’s say, Uncle Fred). When a second widget maker is needed, he or she naturally reports to Uncle Fred because he is experienced at making widgets.

Before long, Uncle Fred is managing a staff of widget makers -- he has been automatically promoted. Unfortunately, if Uncle Fred doesn’t have the skill set to be a manager, you’ve got a problem. Make sure that promotions into management positions are explicit decisions, not unconscious progressions.

2. Assess employees' skills early. Make a conscious decision regarding the ability of your first employees to grow into management positions within the organization. Make this assessment long before you need a manager. Don’t give people management responsibilities if they don’t have the skills to succeed.

3. Invest if appropriate. You may have an employee who you believe could develop the skills to manage, with some training. This is a process. It’s not something that happens in a single seminar.

Begin investing long before you need the employee to accept management responsibility. Give him or her opportunities to practice new skills before being promoted. For example, give him or her the responsibility for managing a taskforce or a special project and provide feedback on performance.

Related: Bring Out the Best in Your Employees, Based on Their Brain Type

4. Keep salaries in line. One of the biggest problems we see occurs when employees who lack the skills to succeed as managers are promoted and their compensation is increased to match the job. When such employees fail, the company is left with unattractive alternatives:

  • Let the failed manager continue to underperform (the worst possible choice for the enterprise, but one we see small businesses make too frequently).
  • Terminate the employee.
  • Demote the employee and reduce his or her compensation.
  • Demote the employee but allow him or her to keep the higher compensation.

There are no good choices here. Which one is the “least bad” will depend on the situation. The decision is more difficult when the employee is a friend or family member. Our advice is to not raise a new manager’s compensation until he or she is succeeding in the new role.

5. Set expectations well in advance. Have candid conversations with employees about their aspirations and your perspective on their abilities. Don’t let employees develop false expectations. It will only result in a disgruntled employee at some point in the future.

If you have employees, you will eventually be faced with difficult decisions. Keeping under-skilled, underperforming employees in key roles is not an acceptable option if you want your organization to grow and be profitable.

No employer wants to terminate a long-term, loyal employee. Layering these employees may be the better option and may be doable with advanced planning. Following the tips above will help avoid the situation or ease the transition.

Related: 3 Reasons Your Business Isn't Growing