Can you afford to hire another person?

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Can you afford to hire another person?

By Anna MaskerIn standard15th July, 2016

280x191 - chicken_egg

It’s the classic chicken or the egg situation.

Do you hire a new person to handle all the new business you think is going to come in?  Do you wait for the new business to come in then hire someone?

It’s the age-old question every entrepreneur has had to consider.

Hiring a new person is like buying a house.  Because, literally, in some cases you may be spending as much on a small house as you would on a new person.  You don’t take the house purchase decision lightly, so why should you go out and hire someone without thinking it through?

When you are growing fast and everyone on staff is overwhelmed it’s easy to default to adding new people.  Or if you are not growing as fast or want to make a big move, you may be considering hiring a new person.

Here are some tips to make sure you’ve got your mind wrapped around the whole idea of hiring a new person– the good, the bad, the ugly:

Look through your own window.    What we often find when clients come to us and say they need to hire a new person, they’ve already convinced themselves of the benefits of hiring that person.  They’ve done some top line calculations and have it all worked out… picturing how wonderful their lives will be with someone to bring in new business, reduce their personal workload, etc.  We can all talk ourselves into– well– anything, but hiring a new person requires objectivity.   That’s why you need to take a step back and think to yourself if you were outside looking into your business, what would you do?  What would you advise a colleague to do? Does it really make sense?

Check the runway.  The runway is how long can you sustain this person before they “take off” and start paying for themselves.  This is probably the most underestimated factor in any new hire.  Like a house that needs renovations, a new hire needs time to get acclimated, build a book of business, learn the ropes, etc.  New hires are also disruptive to the whole organization– they require time, training, hand-holding and acclimation into the company culture.  While all this learning is going on, cash is flying out the door in salaries and lower productivity.  Be realistic and put together the numbers to make sure that you quantify when the new person is going to start paying for themselves and make sure you have the cash reserves to sustain them.

Show me the money.  I mean it.  Show me how much money you think this person will make you in increased profits, better productivity, billable hours, etc.  These aren’t back-of-the-cocktail-napkin kind of numbers–  I want real numbers.   Then… slice those numbers in half.    And half again.   What does that do to your whole equation?  The reality is, short of a salesperson and maybe a billable producer,  it is really hard to truly quantify how much money a new hire will make.  So if your calculations are off you need to be prepared.

Don’t forget the fringe.  Along with every paycheck comes payroll taxes.  Assume 12% on top of every salary and don’t forget to factor in  your benefits, new computers, vacation, etc.   Also, despite  the fact you want your staff to spend 100% of their time on productive activities, there is always time that is dedicated to administrative activities so don’t forget to add that in.

Look at your track record.  Before you go and hire someone, it’s a good time to do a post mortem on your last hire.  Did they work out?  What was their ramp-up time?  Were they as billable/ productive as you thought they would be?   Turnover is expensive!  Really, really expensive.  So don’t underestimate your costs if you make the wrong hire, whether they don’t perform or they don’t fit.

What’s the opportunity cost?  I put this last because people always think about it as a means to justify a hire.  The reality is, none of us have a crystal ball, but we do have logic, history, and, yes, some “gut feel” for these things.    There are things you cannot do if you don’t hire the person– whether that is go after new markets, fix your in-house operations, etc.  What’s it costing you now by not going after those activities?   Quantify them as much as you can and be realistic.  The fact is, sometimes you need to make the leap and hire someone to get you to the next level.

A new hire is a big decision…  It’s the house that needs renovations and a significant investment of time, patience and attention.  So whether you are growing really fast and are at a point of desperation or you are looking to take your business up to the next step of and are at a point of contemplation, it makes sense to slow down and take your time and give yourself a reality check.

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