When Can You Responsibly Hire Your Next Employee?

The decision to hire a new employee is a pivotal moment for any business. It marks a strategic investment in growth, productivity, and ultimately, the success of the organization. However, this decision shouldn’t be taken lightly. Understanding the right time to hire is crucial for effective resource allocation and financial management. Because we’ve seen many times that business owners hire people and end up regretting that decision for years to come.

First of All, Identify the Need

Do you really need to hire this person?

I can’t tell you how many times business owners misjudge this decision. Small business owners don’t typically have a great way to assess whether or not a new person needs to be hired for a particular position. Like for Get Better Bookkeeping, we consider that our bookkeeping team goes in increments of 15 companies. That means for every 15 companies we work with, there is one bookkeeper. So if we have 90 companies with us, we should have approximately six bookkeepers on staff. Then for every 40 to 50 companies we work with, we have that many account managers. 

Does your company have details like this to gauge hiring decisions? My guess is no!

Some business owners wait too long to do this and it royally hurts their ability to efficiently scale up their company. So here are the three core factors that help answer this question:

  1. Increased Workload: If existing employees are consistently overwhelmed with tasks or deadlines are being missed, it may be a sign that additional help is needed.
  2. Business Growth: A growing customer base, expanding operations, or launching new products/services often require additional manpower to sustain momentum.
  3. Specialized Skills: When certain skill sets are lacking within the current team, but are crucial for business objectives, hiring someone with the required expertise becomes imperative.

Next, Understand the Financial Implications

Can I literally afford to hire someone?

Once you definitely believe that there is a need in your company for another employee (or your first one), you need to seriously consider whether or not you can financially swing getting a new person onboard. Here are the factors to weigh in this decision:

  1. Budget Allocation: One of the primary financial decisions in hiring a new employee is budget allocation. Are you profitable enough with your current team to front the expense of a new person? This involves assessing the current financial standing of the company and determining how much can be allocated towards salary, benefits, and other associated costs. 
  2. Training Expenses: Training new employees incurs costs both in terms of time and resources. Consideration should be given to the expenses associated with onboarding and integrating the new hire into the team. It’s the goal of every business to decrease the time it takes for a new employee to get good enough to be valuable to your company, instead of just a dead weight.
  3. Turnover Risk: High turnover rates can significantly impact a company’s finances. The cost of recruiting, hiring, and training new employees can add up quickly. It’s essential to evaluate whether the business can afford the risk of turnover before bringing on a new employee.
  4. Real Payroll Wage and Tax Costs: The actual cost of an employee goes beyond their salary. Employers must also factor in payroll taxes, benefits, and any additional perks or incentives offered. So if you are paying some $26/hour, this is approximately $4500/month in just wages. But really, if you offer health insurance coverage and paid time off and include payroll taxes, the monthly expense could actually be up to $5500/month!
  5. Opportunity Cost: Hiring a new employee means allocating resources that could be used elsewhere in the business. Consider the opportunity cost of hiring versus investing in technology, marketing, or other areas that could drive growth or efficiency.

Finally, Keep Turnover as Low as Possible

How can you make sure every hire is the best hire possible for your company? How do you make sure your new employee thrives at your company?

To mitigate the financial risks associated with hiring a new employee, please utilize these processes and structures below in your company!

  1. Thorough Recruitment Process: Investing time and resources in finding the right candidate can reduce the likelihood of turnover. Conducting thorough interviews, background checks, and skills assessments can help ensure a good fit for the role. And a little tip…have your current team be part of this process! If you like your current team, they can help you figure out whether or not the prospect is a good fit!
  2. Onboarding and Training Programs: Implementing comprehensive onboarding and training programs can help new hires acclimate to their roles more quickly, reducing the time and resources required for integration. You basically want to create an onboarding schedule or as we call at GBB, a “ramp up” period to being a valuable employee here.
  3. Key Performance Indicators (KPIs): Establish clear performance metrics and goals for new hires to ensure accountability and measure their impact on the business. This can help identify areas for improvement and address any issues early on. These help you understand whether your new hire is doing well or not based on your company’s standards for success.

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