Dan Bobinski's Answer:
Well Connie, metaphorically speaking, she does need a slap in the face. You are part of a very small business, and you can't afford to pay people for doing nothing.
In other words, a firm line needs to be drawn. But if you're concerned about not appearing as a nag, then lean on company policy to be the "bad guy," not you.
That said, with such a small office it's probably unlikely that you have a company policy manual, but that doesn't mean you shouldn't have one. They're valuable even for small offices, so get one. If need be, buy a software program that gives you a template and edit your own. Here are my recommendations:
1. Create a policy manual. In the "unacceptable activities" section, be sure to address issues like texting, personal phone calls, and work deadlines. You'll need to cover a broader spectrum, but those should be included.
2. In the manual, clearly delineate a discipline policy. It's commonly accepted practice to have graduating levels of discipline. For example: 1st offence: Verbal warning; 2nd offence: Written warning and suspension without pay; 3rd offence: Dismissal.
3. Print copies of the policy manual and have all employees sign a page that indicates they've read and understand the manual, and that as a condition of employment, they agree to abide by the policies set forth.
4. After everyone has provided you signed copies that they've read and understand the manual, you are free to administer discipline without fear of a lawsuit, and you can lean on the manual as the "bad guy." e.g., "I'm sorry, Susan, but spending 30 minutes each hour talking and texting to friends is a violation of company policy. I'm going to have to issue you a verbal warning that this is unacceptable. If it happens again I'm going to have to issue a written warning along with a suspension without pay."
Be sure to document the day and time you gave her that warning and file it in her personnel file.
This way, you're not a dictator for firmly but politely following company policy. You state that one of your hats is to manage the other two people in the office. That position grants you authority, and you must step up and assertively (not aggressively, but firmly and politely) take that authority.
Be matter-of-fact about it. Emphasize the need to accomplish company goals. Reiterate that you want people to enjoy their job, but that if goals are not met, then the bottom line suffers and people start getting laid off.
It also sounds like you might benefit from conducting a short training on SMART goals. If you're not familiar with them, do a search on the phrase and study up on it. Goals should be specifically measureable, have a specific action, be realistic, and have a specific time of completion (SMART). If you provide training on goal setting and your daydreamer still can't meet deadlines, you have a strong position if the situation reaches the point of termination.
Contrary to what some believe, a job is not a right, and your lazy employee is not entitled to a job. She's entitled to a paycheck if she performs prescribed tasks outlined in her job, but she is not entitled to the job if she does not meet job expectations.
Step up, my friend. Be firm but polite. You have been placed over these two employees to manage their efforts. Provide training to help them meet their objectives, but if they still can't do it, you need to be firm but polite and do what's required of your position.