There have been countless articles written on the steps to take when firing (I'll save everyone the time of rehashing them here). I think that there are a few issues that need to be addressed in firing, though, that most people don't discuss.
1. You need to learn how to do it. Unfortunately, you're going to need to know how. Some entrepreneurs loathe firing so much that they delay it and keep bad employees for way too long just to avoid the awkwardness. That's just dumb. Each day you keep a bad employee, you're sending the wrong message.
First, to the bad employee, you're saying that everything is okay. More importantly, to your good employees, you're saying that incompetence (or whatever issue you have) is okay with the company. You're also ignoring the fact that a bad employee annoys good employees as much as they do management. The best motivator for a good employee is to fire the bad ones. You owe it to yourself to learn how to fire people and use this skill when the time is right.
2. If it's right for the company, it's probably right for the employee, too. All too often we think that we are going to wreak severe havoc on the employee's life by terminating them. But in most cases, if the company is not benefiting from the relationship, the employee probably knows this, too, and is uncomfortable.
3. Communicate grounds for firing early and often. Every company has rules that simply cannot be broken. As soon as someone breaks one of these rules, management is ready to fire. That policy is okay, as long as it has been communicated to the staff many times and isn¹t a surprise. If you fire anyone who doesn't call in if they are sick or need to miss work, make sure that your people know this policy. Tell them when you hire them, put it in employee handbooks and communicate it often in meetings. Without proper notification, you're in for some headaches and maybe even some legal trouble. If everyone knows the rules, though, your office will be much more comfortable.
4. Yes, fit IS that important. Many companies do not want to fire someone simply because they don't fit into the company culture. This is a horrible mistake and you must not fall into the trap. While you aren't in the business of creating a corporate clique, maintaining the proper culture of your company is crucial. It doesn't take many bad apples to ruin great culture. We aggressively defend our culture and are happy to fire people who don't fit. It may be harsh, but all new employees know about this policy (see #3) and it is the only way to make sure that morale stays high.
5. Buy employment practice liability (EPL) insurance. If you can afford it, this coverage is worth its weight in gold. You can avoid many sleepless nights and the cost is usually pretty reasonable.
By keeping up on the five hidden secrets of firing, you'll protect yourself, your company, and your sleep when the inevitable happens.