Business owners have to make difficult decisions every day, many of these decisions have financial implications and can impact not only the bottom line of a business, but also the livelihood of families. Knowing when you are able to financially afford a new employee is one of those tough questions.
This can be such a tough decision because for many types of employees the expense is a big jump, it is hard to ease into hiring a new employee. For some positions you might be able to start part time and add hours over time, but depending on your trade, this may not be possible. In order to get good employees you might need to commit to full time employment right away.
Here are a few tips to help determine if now is the time to hire a new employee:
- Do you already have the work? If you already are working over time and know you can keep a new employee busy, great! But if you are hoping to grow into this new position, it might be a good idea to work extra hard for a period of time so that you have some built in work and revenue to cover the cost of the new employee.
- Are wages the only cost involved? Are you going to need to buy equipment for this new employee? Maybe a computer, desk, chair, phone, etc? Or if you are in a service business, maybe the new employee needs a work van and equipment? This is common for plumbers, electricians, carpet cleaners, pest control, etc, etc where you need to put the new employee out on the road in order to generate revenue. For these types of positions you need to be extra sure that you can get the work lined up to cover the costs because it is more than just wages you need to cover, you will probably have loan payments for the new vehicle or equipment you purchased.
- Is the position revenue generating or overhead? The math is quite a bit different depending on whether you are hiring a revenue generating position, or an office and admin position. For a revenue generating position they should be able to start paying for themselves probably within a month or two. Overhead positions need to be completely covered by your current revenue generating employees. You should not hire additional overhead until you know you can already afford their monthly salary because they won’t be adding any additional revenue to the company.
According to an Inc Magazine article nearly 50% of new businesses don’t see their 5th anniversary, but here are some tips if you find yourself unable to make payroll one week.