When Should a Business Hire Additional Staff?

After reaching a measurable level of success, a business owner must consider if they should hire additional staff.  The average salary for a small business employee is $30,000 to $35,000, annually. Source: http://www.ehow.com/i/#article_6659754 This equals weekly revenue of $693 – $808 (fully loaded with taxes and benefits).

When can a business afford to hire additional staff?Now Hiring Button

This seems like a simple question but it has various business implications and should be viewed strategically.   When a business owner is considering adding staff they should consider these eight strategic questions.

  1. What would be the business impact if you did nothing? If the new position wasn’t filled then what?  Could it wait until the company is in better financial position to absorb the increase? Just because you want to hire someone doesn’t mean you have to or should.
  2. Will hiring the new person place the business in a negative cash flow (cf)? If so, for how long and how will the business fund the negative cf (working capital, infusion of a cash investment, delayed accounts payable – e.g. Vendor funded).
  3. How  does the new position support the business’ strategic objectives? Which short or long range objective will the new position help address. Often a business owner will hire someone that they believe is talented and will have to create a position for them.  Michael Jordan proved that talent doesn’t always translate across all sports. So, just because someone is talented, doesn’t mean they will be successful in your particular industry. Or even good at meeting the particular business need.
  4. Does the additional position help to eliminate or avoid a cost? If so, the cost should be quantifiable and have a payback period of 1 -3 years. Preforming this payback analysis will let you know when the company will recover from the negative impact?
  5. What is an  alternative use of the funds: Savings, Loan/debt reduction, or a capital project (equipment, repairs, etc)? This is the opportunity cost for hiring the employee.  There isn’t a such thing as free money. $35,000 spent on a new employee is money not invested elsewhere. Other investments could have a higher return on investment (ROI).  Consider the alternative investments such as a new product launch, plant expansion or investing in reducing employee turnover via raises and bonuses. Determine if hiring the new employee has a higher priority.
  6. Can the postponed investment wait to a later date? What is the impact of delaying the alternative investment?  Remember point #2. The alternative investment could have been the reducing accounts payable. Slow paying a vendor could damage the long term relationship.?
  7. What is your recourse if you determine the new employee was a bad hire? Is the new hire under a contract that can be terminated?  Does the employee know that employment will be on a trial bases? Are you prepared emotionally to release the  person if the business assumptions don’t come to fruition?
  8. Have you meditated on the decision? Do not act until you have peace about the next steps.

SummaryNow Hiring

Never rush into any decision without counting the cost. Especially, when it comes to hiring employees. Entrepreneurs deal with risk every day and are very optimistic; however, employees are not always as optimistic  (if so they would be the Entrepreneur.) Employees don’t always  have faith that things will get better and may not be prepared to recover for a bad business decision.

When considering these eight points you are doing  your due diligence and you should be comfort with now making a hiring decision.

Author: Manch Kersee, Jr.