Do You Have Enough Money to Hire an Employee?

“Do I have enough money to hire an employee?” It’s the million-dollar question (literally, sometimes) that haunts every business owner. Yet, the simple answer is… there’s no simple answer! 

Hiring your next employee, or even your first one, can be a pivotal moment for your business. It’s a decision that holds the potential to drive growth, increase efficiency, and take your company to new heights. However, it’s not a decision to be taken lightly. Determining whether you have enough money to bring someone on board requires careful consideration of your unique circumstances. 

Today’s blog post will give you some general guidelines to help you assess your readiness. Forget one-size-fits-all advice; instead, I will arm you with 3 critical questions to ask yourself before taking the plunge, followed by some potential solutions that will undoubtedly help you make the right decisions to hire new employees.

 

1. Are you operating at maximum efficiency with your current team? 

In other words, do you have a productive labor force? Oftentimes, business owners look to hire new employees when they really need to better utilize the people they already have. So before you bring onboard someone new, make sure the existing team you have in place is getting it done.

 

2. Would it be better to purchase a system or technology instead? 

Something that would make it so you don’t need to hire an extra employee. Investing in the right technology can help your organization become more efficient, often at a lower cost than adding one more person to your payroll. So, see if this is an option for you before opening up recruitment.

 

3. If you conclude that hiring a new employee is the right move, does it have to be a full-time employee? 

Is a part-timer enough, or could you outsource the job instead? Basically, figure out what makes the most economic sense for your situation.

After you’ve carefully considered the 3 questions above, you can then move on to the points below. They’re crucial for helping you determine whether or not you have enough money to hire that new employee:

 

1. Do you have 3-6 months’ worth of salary saved up in your growth account to hire a new employee? 

We go into more details about this in another blog post, but the growth account is just a bank account where you save up for major expenses. Hiring a new employee is one such expense. I suggest setting aside enough money so that you’d be able to pay the new hire for 3-6 months, just to give yourself some wiggle room in case it takes a little while before you start getting a return on your investment. By the way, I’m using the 3-6 month figure only as an example. Your numbers may be different depending on the nature of the position you’re hiring for.

 

2. This goes back to knowing your numbers really well, but are you currently making 15-20% net profit? 

Hiring a new employee is expensive. Even if you are already at 15-20% net profit, a new hire may drop that number down to 10%. This is usually okay because it’s a temporary situation, and the company can still sustain itself during the new hire’s adjustment period. However, if you’re only at 10% net profit currently and you bring someone on, that number might drop down to 5% or less. Then you’re walking into a danger zone. So get to know your numbers well, and don’t let your net profit drop too low for comfort. A new hire may not be worth the risk.

 

3. Commission-based positions are not risk free. 

A lot of people think there’s no risk involved with bringing on a salesperson whose pay will be 100% commission-based. This is not necessarily true at all, because it takes valuable time to train that person. And if you’re not training them, you’re paying someone else who is. So think through the monetary value of time before you hire an employee, even if the position won’t be earning a base salary.

 

4. How quickly do you expect to get results? 

You may be able to hire sooner if you’re bringing on a revenue-generating person. For example, if the new hire is a marketing expert and you’re expecting a dramatic increase in sales within a month, that obviously is less risky than, say, a new assistant, whose impact may not be felt for a longer period of time. That means if the right revenue-generating candidate comes along, it might be a good idea for you to hire that new employee even if you don’t have 3-6 months’ worth of salary expenses saved up in your growth account. Just be sure to set realistic expectations. And when in doubt, be conservative.

 

5. Do you feel comfortable acquiring debt? 

If you’re looking to really scale up fast, are you willing to take out a bank loan? Sometimes, if your strategy is more on the aggressive side, you need a lot of cash. There is too much to save up for in a reasonable amount of time. While debt should be used sparingly, it can still make sense in certain situations where hypergrowth is the appropriate tactic. Also, if an angel investor comes along, are you willing to give up a percentage of your company so it can grow faster? These are all good questions to think about if you’re looking to expand your team in a big way and hire more than one employee.

 

6. If necessary, are you willing to let the new recruit go? 

This is often one of the toughest hurdles that small business owners have to face. Let’s say you just hired a new employee. You’ve put together a job score card that clearly defines his roles and responsibilities. You onboard him, provide ample training, and give him enough time to learn the ropes. You make sure that he has all the tools necessary to succeed. Basically, you’ve done everything you can. So, what if he’s still not making the cut? Are you willing to let him go quickly? It’s a tough task, to be sure. Many business owners know early on that a new hire is not the right fit, yet they keep that person on for too long. Regardless of how bad it feels to terminate an employee, not doing so is a drain on your company’s resources, can lower morale, and may even end up destroying your business altogether.

 

7. Is there a financial bankruptcy risk if you bring on a new employee? 

For example, if you’re a solopreneur and you’re thinking about recruiting for a $150k/year position, NEVER do something so CRAZY. There’s no reason to put yourself in such a risky position, no matter how promising the new hire may seem. I get that you may be feeling optimistic, but you can never be sure that things will always work out exactly the way you planned. Never risk it all.

 

To conclude, 

These guidelines serve as a roadmap when considering hiring your next employee. Remember, strategically planned hiring can positively impact your business’s growth and sustainability, and it has to align with your business goals and financial health. 

While each situation is unique and dynamic, thoughtful consideration of these factors will help you determine whether you have enough money to hire your next employee. For optimal guidance in this complex decision, consider seeking one-on-one coaching, which can be invaluable. If you’re not plugged into a mastermind or coaching relationship, please consider doing so. Obviously, we’d be honored to serve you in that capacity.

Again, take these insights into account, take action when the time is right, and have a better than amazing day.

For expert advice, we’ll be delighted to help you. Reach out right here. 

 

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