Can you afford to hire a new employee?

This article is part of a series of articles entitled “If you’ve got bad employees, it’s probably your fault”.

When I thought it was time for my company to grow, I was so blinded by my desire to start building a team that I didn’t consider all of the financial burdens that would come with hiring my first full time employee.

If you’re a business owner who hasn’t brought on a full time employee, you’re probably thinking the same thing that I did.  I felt like I was doing 110% of my physical and mental capacity, and that I just had to have someone else around the office to help take some things off my plate.

Just simple math would dictate that bringing on an employee that Can You Afford To Hire A New Employee?takes on 50% or more of your duties (because no one could do 100% of what you do…. no one could POSSIBLY work as hard as you do, right? (please note the sarcasm, tongue in cheek, and overall pompous attitude I had)), then that would free you up to add another 50% or more into your day and now the company will be doing 160% or more by adding one person.

Here are three things that I didn’t consider (about the financial aspects of hiring a new employee):

1.  What if there isn’t 60% more work to be done? We had some big contracts, but there weren’t many more out there to be had.  You must look at your potential for growth, not just the convenience of having an employee to take things off your plate.

2.  What if you lose a contract?  This employee’s job description meant that he was going to spend about 50% of his time with this one specific client, and the income that came in from that contract was more than his salary.   It should have been a win-win.  He takes care of this client for 50% of his day, the client pays his salary, and then I get another 50% out of him for other tasks around the business.  But what happens when the client announces one day they don’t need you anymore (and that did happen to me)?

3.  A salary isn’t just a salary.  You MUST factor in the cost of HAVING an employee.  You will either pay an accounting firm to do your payroll, or you’ll be learning a new skill (I didn’t learn the skill and tried to do it anyway… which maybe we’ll talk about the ramifications of that in a later article).  You’ll be matching Social Security, filing monthly or quarterly tax forms, unemployment forms, etc, etc.  While the percentage changes by the salary you pay, I didn’t expect to spend an additional 20-30% of the employee’s salary for taxes, insurance, social security, etc.

Consider all of this when hiring your first employee (or adding ANY employee).  Are you bringing on a salesperson?  Will you be giving them a base salary, even if they don’t produce?  How long can you afford to keep them on staff if they’re not producing?  What level will they have to produce at in order to break even, or turn a bigger profit for the company?

This may sound too good to be true, but what if the sales person sells TOO MUCH?  What if you’re in the lawn care business, and you get a sales person that signs up another 200 homes and businesses, but your current inventory of trucks and equipment could only handle another 125 homes, and the extra 75 spots aren’t enough to justify buying new equipment?  Too much new business might not be a blessing.

Can you afford to train them?  Don’t forget about the time you’ll lose bringing them up to speed on the way you want things done.  If you can find someone who is already familiar with your industry or better yet… already intimately involved in your company (already a part time employee, etc)… that is the best way of bringing someone on full time.

Come back tomorrow to find out how to find and hire the RIGHT employees.

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