Can I afford to hire an employee? Ideas to consider
As your business grows, the need for talent grows as well. So, the next logical question is, “Can I afford to hire a new employee?”
Cash flow is always an issue when you hire. Unfortunately, the uncertainty surrounding money makes many businesses delay hiring at exactly the time they should be adding new team members. As a result, when the need becomes critical, many companies end up hiring too quickly and risk making a bad hire. If delayed too long, your company may lose money in the form of lost opportunities.
“Taking a business through a growth cycle requires owners to be patient about the plan,” says Vanessa Graham, a consultant who provides strategic business advice to growing companies. It’s a delicate balance. Graham recommends viewing the endeavor as an investment. If done right, growing your company’s operations will result in a positive cash flow, she says.
The following ideas can help you stay on top of your cash flow while strategically adding to your team.
Set a smart budget
Central to answering the “Can I afford to hire an employee” question is forecasting the revenue and growth of your business.
Leo Welder, founder of ChooseWhat.com, a startup guide based in Austin, Texas, aims to have enough cash flow and reserves to cover the new hire’s salary plus 20 percent for additional overhead and incentives for one year. “If my current cash flow — plus reserves — will run out before hitting the 12-month mark, it’s too risky for both me and the potential hire.”
To plan successfully, you may need to get your company leaders and HR or hiring managers on the same page when it comes to keeping cash flow a priority, Graham says. “Make sure that financial performance is measured not only in terms of profitability but in terms of cash flow,” she says. “Keep financial partners in the loop so they can be there and provide support when needed.”
Consider temp, contract, and part-time options
As part of your forecasting, consider whether you really need to commit to a full-time person or whether it makes more sense to try more flexible options. Temporary or contract employees can respond to short-term needs for additional labor, while part-time employees can increase your bandwidth proportionately as you grow.
If you do decide to bring on new people and are unsure about your ability to take on a full-time person, consider doing so gradually. Hire a part-time person for three to nine months to establish processes, says Ken Yager, president of Newpoint Advisors, a company in Schaumburg, Illinois that helps organizations focus on cash flow.
Taking the time to ramp up from part-time to full-time — or temp to perm — can give your cash flow some breathing room as your company grows.
Get creative with compensation
Perhaps you’ve answered the question, “Can I afford to hire an employee?” with a hesitant, “Yes, but just barely.” If you need to add staff when cash is lean, you may need to get creative with your compensation model. Base salaries are important, of course, but for the right person, performance-based incentives and other aspects of the working arrangement can carry a lot of weight.
Bonuses pegged to performance can help you keep initial salaries lower while you increase your cash, Yager says. Establish goals for new employees that reflect both their performance and how the company is doing overall.
What if you can’t afford to pay top dollar for top candidates? A well-defined employer brand can help your business attract talent, while your company culture can help retain them. Both can assist in attracting talent in lieu of a big salary.
Hiring for culture can also facilitate your search for people who are willing to accept deferred compensation, says David Fagan, CEO of Icon Builder Media, a public relations and marketing company in Beverly Hills, California. “If someone will take less money in exchange for a percentage of the success of the company, this is a strong sign that he or she has faith in the brand,” he says.
Someone who believes in your company and its mission may be willing to accept less money up front, particularly if you’re offering a percentage of success later on, he says.
Hire your next employee with confidence
The next question after “Can I afford to hire an employee?” is “How do I find the right one?” Whether you’re looking for a full-time staff member, a part-time employee, or a contract worker, you’ll want someone with the skills and personality to help your business succeed. Get started by signing up for Monster Hiring Solutions where you’ll receive expert recruiting advice and the latest hiring trends.