How Do I Know if I Can Afford to Hire an Employee?
Every business owner is familiar with that chicken-or-egg hiring question.
Do I need to hire so I can increase revenue, or do I need to increase revenue so I can afford to hire?
The simple answer is “yes.”
Not helpful, I know.
But it’s true!
There comes a time in your business when you’re not going to grow without bringing on new team members. And I’m a huge proponent of investing back into your business. Even if you’re not flatlining, you should always be looking for ways to capitalize on what’s working and accelerate growth. A new hire can be a great way to do that.
However, there will probably be times when hiring is a reckless proposition because you just can’t afford it yet.
How do you know the difference?
Ask yourself these five questions. (Quick Tip: You’re going to want to do this in writing.)
1. How Will a New Hire Boost Revenue?
First and foremost, you need to understand—in numbers—how a new hire will equal growth.
It’s not enough to say, “I’m overwhelmed and I need help.” Even if that’s true, you gotta think in terms of growth and not just survival. If bringing on a new person frees up your time, what will you do with that time?
Pro tip: your goal as a business owner should be to get out of the day-to-day as quickly as possible. You want to think less about managing operations and more about big-picture strategies like connecting with high value clients and referral partners.
That’s where the growth comes in.
Also consider the revenue boost you hope to get from having a bigger staff. Are you bringing on new technicians so you can handle more jobs? Did you want a sales lead or marketing expert who can help you connect with more clients?
Even if it seems obvious, write out all the ways you expect to increase revenue by expanding your team.
This exercise can also help you determine which type of role is most valuable to your business at this time. Sometimes we can get so wrapped up in our stressors that we want to hire whatever professional can take that stress away from us. It’s important to look at the larger strategy to determine what’s actually best for your business at this moment.
2. How Long Can You Afford to Cover a Salary Before Generating More Revenue?
No matter what position you’re hiring for, you are unlikely to see the financial benefits of your hire for at least a few months. To put it another way, it’s going to be a little while before your new hire starts paying for themselves.
So take a look at your finances. How long can you afford to cover the salary you’re offering without an increase in revenue?
Once you have the answer, do your research and make sure you understand how quickly you can realistically expect to start making enough additional revenue to cover your new hire’s salary.
This can vary a lot depending on the position. If you’re hiring a technician to keep up with overwhelming demand for your services, it might not take that long for a new hire to pay off.
But if you’re hiring a marketing specialist or bringing on an office manager to free up your time for big picture stuff, you might anticipate a longer wait.
3. How Much Revenue Do You Need to Generate to Justify the Expense of Hiring?
By this point, you should have a clear picture of what you can afford. But remember, you’re hiring with the goal of growing your business. Your goal is to ultimately make more money even after you account for the salary of your new employee.
So take a minute to outline those expectations. How much new revenue do you need to generate on top of the cost of salary in order for this hire to have been worth it?
4. What Is It Going to Take to Generate That Revenue?
Now that you know your exact revenue goals, make sure you understand where that revenue is going to come from.
For example, let’s say you’re hiring a couple new technicians so you can take on more jobs. Working backwards from the amount of revenue you ultimately want to make:
- How many jobs do you need to do in a month?
- Based on your lead close rate, how many leads will you need to generate in a month to book that number of jobs?
- What marketing or sales efforts are needed to generate that many leads and book that many jobs?
Or, if you’re hiring someone to handle the day-to-day while you work on big picture strategies, how much money do you need to bring in through new relationships or services? What kind of time investment will that involve? What do you need to do to prepare to go all-in on your new area of focus?
5. Does This Plan Make Sense Right Now?
Step back and look at all your answers to the previous four questions. Now that you have the overview of what it will actually cost you to hire, what you stand to gain, and what you’ll have to do to come out ahead, ask yourself:
- Can I afford to hire right now?
- Am I prepared to do what I have to do on my end to make sure this hire is profitable for my business?
- What other expenses might arise as a result of this hire?
- How will this person help me get the business where I want it to be?
- Am I hiring for the right position? Is there a different role I should fill first?
- What opportunities am I missing if I don’t hire right now?
When you allow yourself the time to really think through your vision and strategy, you give yourself the gift of clarity. And clarity is power. You know where you’re headed. You know how to get there. And you see the opportunities and threats along the way.
This is why I highly recommend:
A Free Tool for Finding Clarity
You need a business plan. A business plan gives you a clear path for building the business you’ve dreamed of, and there is nothing more valuable than that.
That’s why I’ve created the free Business Plan Wizard. It’s an incredibly easy way to create a clear, concrete vision for your business. Just plug in a few answers and see what it’s going to take to reach your revenue goals this year and over the next few years.
You can access the Business Plan Wizard here. It doesn’t cost you a cent, and there’s no sign-up required.
Further Resources on This Topic
Free Video Course: Business Owner Q&A
Free Tool: Job Description Generator