The workload is high and your team is drowning in work. You need to hire someone! But hiring as a small or scaling business can be a daunting task, especially considering the cost of making a bad hire.
Sure, TalentVine is all about helping employers to grow their teams but this should be a carefully thought out process. Before you start the process, here are two important points you need to look at to determine whether or not your business can actually afford to grow the team. Jason Andrew, Chartered Accountant to high-growth companies, shares some important tips:
Forecasted Sales Should Cover Two Months Of Salary
Employees are your greatest asset. They may not be accounted for on your BAS every quarter, though they do add financial value and potentially determine the success of your business. Employees are also human and need time to adjust and work effectively. The cost of this time, along with resources and training can put a financial constraint on your business. And although temporary, this should be taken into consideration before welcoming any new recruits. So, it’s important to factor in enough revenue to not only cover the cost of the new employee but the indirect costs it may have on the company. So what’s enough revenue? You should plan a ‘two-month secured revenue’ buffer in the same month that your new staff is hired. This will cover any potential losses until the team is running at peak performance. For example, if your new hire has a salary of $7000 per month, you should have at least $14000 of new committed sales in the pipeline.
The risk associated with not having a ‘buffer’ can result in direct loss of profit. When the cost of your new employee outweighs any new sales generated, this can lead your business in a backwards motion- the opposite direction which initiated the new hire. A ‘Profit and Loss Statement’ (P&L) is a great way to summarise the revenue, costs and expenses prior to this on-boarding process.
Have Two Months Of Wages As Cash
Money, Money, Money. Have it set aside before hiring another person on the team. Although your business may be profitable, the cash might not be readily available in time for payroll. Your new hire is unlikely and realistically unable to generate a profit the minute they step foot in the door- so be prepared.
The turn over for cash flow can also be unpredictable and as a business owner, this should be understood, especially when adding to the monthly expenditure. Regardless of late payments, unforeseen costs or a rare one-off expense, the money should be there as a safety net. The idea is to evaluate the impact of any potential setbacks and protect yourself and your business. As business owners, we strive to deliver great value and can get caught up in the idea of growth and expansion. Before making the decision of hiring new staff, ask yourself- do I need more staff? And more importantly, can I afford it? Bigger doesn’t always mean better.
If you can’t cover these bases then hiring someone could have a negative effect on your business. What should you do instead? At this point, you need to take a look inwards and work out how to make your business more efficient. Watch this space, as we’ll be covering this next week.