5 Keys to Affording a New Hire
Ok, you are ready to do it – make the next hire. But that feeling of overwhelm you have and the flutters in your stomach grab your attention and your brain kicks in a bit of doubt….can I afford it? This is a great question and one that deserves an answer. Let’s look at the 5 key areas that we need to consider to see if financially we can make continued and sustainable payroll with this new hire.
Know the Salary Requirements
First, we need to know what the job description is, what is expected in this position, and how much is this job worth in the marketplace. When we are feeling overworked and desperate it is easy to inflate the rate we are willing to pay just to get a warm body in the door. By looking at the full job description, skill level necessary and outcomes expected and then giving ourselves time to process and do a little market research, we can feel confident that the offer we make is in alignment with what is acceptable in other similar positions. This is important for both us and the potential new hire. We have to feel like the pay is fair and reasonable to both parties for resentment not to be created going forward.
Define Billable and Non-Billable hours
It is rare that any position of an employee is 100% billable at all times. We all have non-billable work to do. If this position is billable, then how many hours a week can be billed and at what rate? You may quickly see that 10 hours need to be billed at $x per hour and the employee’s salary can be covered. What is great is when the employee has the capacity to bill 20 hours a week. The remaining 10 hours will be profit to the company for the work of the employee. The goal is always for the employee to bring in more money than they cost. It can either be by direct billable hours as explained here or by removing work that is non-billable from another employee so that employee can bill more hours. Be clear on how the work of this new hire will impact the work to the client and the supporting role of assisting others in the company. One key point, in most cases, you can do simple math and assume that billable time at best is about 50% of hours worked. For more information on this see the previous blog about hiring a contractor or employee.
Save Before You Hire
Before making any big purchase, and let’s be honest, committing to an employee for years is a big purchase, save for it. I encourage you to create a separate bank account and save the salary that you propose to pay for 3 months. This will help you do a couple of things. First, you will see the impact on the business financially by saving. Then when you on-board the new employee, you will have a financial buffer to the ramp-up. It is rare that someone will join your team and be able to produce output at 100% at the very beginning. You will need time to train them, get them up to speed on your business and ways of doing work, and then preparing them to work independently. This will be a drain on the company for the person who is training as well as the new hire being trained. Having the money set aside will help reduce the financial frustration that could result from having more than one person on staff who is not fully functioning during this time. You will feel more relief in the training process knowing that you planned for this to happen.
Consider Your Pipeline
Knowing how much work is in the pipeline can bring you peace in the hiring process. In this blog post, we consider employees versus subcontractors. The amount of work coming in can help us decide which is best. If there is not enough work coming in to maintain the salary and workload of a new hire, you can either make a plan to sell more to cover it, or to consider a part-time hire or subcontractor instead. Many businesses have been saying “No” to some opportunities due to current employee bandwidth, and this new hire may open up new opportunities that in the past would not have been available.
Project Your Cash Flow
Paying another person will impact cash flow. No way around it. But this does not have to be a bad thing. If you have income projected based on current sales, and you track cash in and cash out, you will be able to know how paying someone will impact the available cash in your company. Here are two prior blog posts about cash flow which can be helpful, Cash Flow Mistakes and 3 Ways to Avoid Scraping the Cash Flow Barrel. Be clear on the amount you will be paying and create a cash flow projection going forward. This will give you an idea of how much work needs to come in to sustain your current business and to provide future growth – and what a great way to create a sales goal! Profit First is my go-to method for managing cash in my business. This methodology allows us to parse the profits in our company and earmark each dollar for use. This intentional use of funds to grow and scale a business – and even to maintain it is stress lowering.
Hiring is a decision that needs to be thoughtfully considered in all five of these ways. And even then, we often want to run it by someone for review. In the Designers’ Inner Circle, we tackle these types of business growth challenges often. If you would like assistance in determining what is right for your organization, check out the Designers’ Inner Circle where our goal is to equip, encourage, empower and educate you to run your 6-7 figure interior design business well.
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