Is it time to add an employee?
Almost every business model has a positive correlation of employee growth to revenue growth – that is, you typically need to hire more people in order to generate more money from your business. If it’s a good business model, that revenue growth more than covers the new employee expense. If it’s not… well it probably doesn’t matter because you won’t be in business much longer.
But how do you go about adding an employee?
*Note – this is primarily targeted to small business owners. If you have already have hundreds of employees then adding 1 or 2 more isn’t much of a concern.
For a small business – whether you currently don’t have any employees or even if you 10 or 15, adding that next person can be challenging. With that in mind, here are a few things to think about.
When do you ‘Pull the Trigger’ on hiring?
The first thing you have to get comfortable with is when it makes sense to hire from a financial perspective.
Demand is greater than your capacity…
This is pretty obvious, if you have additional capacity with your existing team, then you probably don’t need to hire (unless it’s to replace a poor performer, which isn’t really what we’re talking about here).
However, if you have more demand than you can handle, you may want to first consider raising your prices or narrowing the scope of who you work with. Most business owners don’t charge enough for what they do, and if you could make more money by doing less, then you need to be doing that.
Likewise – most businesses sell to way too many customers who aren’t really a fit for the work they do best.
Think about your current customers. If you’re like most businesses, there are at least 10% of your clients who are way more trouble than they’re worth. They’re the ones that make you cringe when they call. They’re the ones who demand lots of special treatment – or have to be chased for payment all the time – or are just rude. If you have bad clients, strongly consider cutting some of them before you hire.
You can Afford to Hire…
Sadly, even if you have more demand than capacity, that doesn’t mean you have the cash or the cash flow to bring someone else on. This is especially true for smaller businesses where 1 new person can mean a huge % jump in overhead.
One suggestion to combat this is to set up a new bank account and start paying the cost of that new employee into that account every month. If, after 3 months or so, you are still functioning well, then you’ve proven you can handle the cash flow hit… and as a bonus you have 3 months of salary already set aside to cover bringing someone on board.
You have a clear path forward…
Before you hire, you’re going to need to have a clear idea of ‘what’ you need to hire. That may be as simple as identifying what’s constraining your capacity and hiring to that. For some businesses, that might be a sales function (we have capacity but we’re not getting enough deals closed). For others, it may be a delivery function.
But it may not be that simple, again especially if you’re a smaller business where everyone does a little bit of everything. Before you can hire, you may need to consider ways to rearrange the work. Can you clearly delineate simple, administrative work from work that requires experience? Or customer facing work versus true back-office stuff? Whatever the case, it’s often a good idea to get a really clear idea of what kind of help you need.
You’ve looking into other possibilities…
Finally – before you hire that shiny new person for your team, have you considered that there might be some other ways to increase your capacity without actually hiring anyone?
Would it be possible to automate a big chunk (or chunks) of what you do? Are there things you or your team are currently doing manually that could be done by an application (or maybe even a robot these days)?
Or could you outsource some of your current work? As an example, if you’re a business owner who’s been in business more than a year or two, then you should hire someone else to do your bookkeeping and payroll. Even if you don’t mind doing it, it’s not a great use of your time. And, it’s possible there may be other things that could be outsourced that you or your team is doing now. You’ll still be paying for it as you grow, but it’s a much smaller commitment and it usually scales fairly well (you only pay for what you need).
A variation on that would be to also consider hiring a part-time employee (or contractor). Depending on how you sliced up the work that needs to be done, maybe you won’t really need a full-time resource for quite some time, so someone at 20 hours a week would be a perfect fit.
Clearly there’s a lot to think about before you even get to hiring someone – and of course, none of that will matter if you aren’t hiring the ‘right’ people. But that doesn’t mean you shouldn’t hire anyone – if you want to grow, then that’s one of the costs of scaling your business. Early on it will feel like a leap of faith, but if you’ve taken the time to think it through it will be a successful one.
What do you think? Are you thinking about your next hire? Or your first hire? We’d love to hear your thoughts – leave us a comment below.
Shawn Kinkade Kansas City Business Coach