Running any business successfully requires making more correct decisions than wrong ones. This statement couldn’t be truer when it comes to hiring, with one of the most difficult questions being whether or not your business can afford to hire: “Can I afford to hire someone?”
This blog post will take a closer look at some of the signs that business owners should watch for to indicate when it’s time to hire, and whether they can afford hiring a new employee.
Doing It All Yourself
This is an area that many business owners can easily find themselves in. The sad reality is that there is a real danger of getting bogged down in routine tasks — tasks that could and should otherwise be completed by others.
A classic example of this is when the business owner finds that they are making daily deliveries, instead of growing their business. When this, or something similar, happens on a regular basis, the business owner will often find that they end up working an extreme amount of hours to catch up on other aspects of their company. This, for many entrepreneurs, should hopefully signal that assistance is required.
As an entrepreneur, some of these routine tasks can be less motivating, and yet they obviously need to be completed. It really comes down to making a decision on who will cover these tasks, as well as other job functions. Failing in this area will mean that you will be forever chasing your own tail, which of course will translate into failing the needs of your business.
Consumer Feedback
Another surefire way of knowing that your business needs an extra set of hands will often come from messages received from your customers. This tends to be a reality of modern business techniques, especially with organizations that have a working presence on the Internet. Very often complaints about slow or poor service tend to be directed at staff levels.
Future Sales Estimations
Sadly, there is no magic formula when trying to decide if you can afford to hire a new employee. That said, the following should provide a little more help when it comes to decisions around this area:
Before adding to your wage bill, it will be a good idea to estimate future sales. Effective planning can be a great contributor to understanding whether or not you have the budget to bring on additional employees. Look at the volumes of business current clients are giving and consider what they’re planning to send your way will really help you to understand what the future will bring.
A twelve-month, or even longer projection, will demonstrate the growth levels for your business. Your main focus should be whether or not your existing teams can come up with the potential incremental levels.
In the event that you find yourself leaning toward hiring, it is a good idea to understand what levels of additional revenue this new person will be expected to bring in. Will you expect or need them to produce the same as existing team members? Or will it be that you need them to generate even more income for your business?
Expenses, Benefits, and Other Costs
When trying to understand further the cost implications of a new employee, it is important not to look at their salary alone. Keep in mind the other factors that you will be responsible for, which normally include the following:
- Recruitment costs
- Training
- New equipment
Brining in a new member to the team is clearly not just about paying them a salary. Next time you ask “Can I afford to hire someone?”, keep in mind that new employees will need to be recruited and trained. Sometimes they might also require specialist equipment to carry out their job functions. Taking into account all of the above will provide a better understanding on the affordability of a new staff member.
Timescale for a Return
So now that you have got an idea of the costs for a new employee, it is sensible to consider how quickly you can expect a return on this investment.
We already know that the cost of recruiting is higher in the first year, taking into account the special costs that were discussed in the expenses and benefits section above. After the first year, there will (hopefully) still be an element of training (i.e. see our post from last month on employee training programs); however, the majority of the costs will arise from the salary elements. The big question is: what additional profit the employee will bring to your business? Subtracting the costs of employment from this figure will provide the overall profitability.
To understand this further it will be worth knowing how long people stay with your company. After all, there is little point to spending money that will only be recouped in two to three years if people generally leave after only eighteen months.
Sometimes, by carrying out this exercise, it will highlight some interesting data around staff turnover levels. The longer that you can keep an employee, the better things will be (generally). Just imagine how much you could save in recruitment costs if you were able to keep staff longer.
If It Doesn’t Fit
Hopefully you will now have reached the stage where you can confidently make a decision. Sometimes, the facts and figures will come screaming back that you simply cannot justify additional full-time assistance. However, this probably won’t detract from the fact that you still need some help.
When this happens, it might well be worth considering a temporary or even part-time arrangement. The benefit here is that your business won’t be having to support full-time employment costs, but will still get the much-needed extra coverage.
Measurement is vital here. If you find that this temporary person is still with you after a couple of months, then you should really take a fresh look at the viability of hiring them full-time.
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