Although some small businesses launch with a single worker – the owner – many quickly outgrow this stage and others, like some retail shops and restaurants, require additional employees from the start. Given this, most small business owners eventually face the challenge of how to budget for new employees.
Employees can be both a critical necessity and a major expense. To help you make the most of this investment, Excelsior Growth Fund (EGF) has put together five budget friendly steps to take before you bring staff on board.
Step 1: Outline the specific tasks or expertise that you need
To hire effectively, be clear about the business needs that you aim to address through additional staff (otherwise, you risk hiring the wrong people). Are new employees essential to get day-to-day work done (say, on a production line or as restaurant servers)? Or could the tasks be outsourced a few hours a week (bookkeeping assistance, for example)? If you’re looking for particular expertise, do you need someone on staff to provide it, or would your time and money be better spent with a weekly or monthly consultant?
Your business plan should include an outline or explanation of your staffing needs and this can be a great starting point (if you don’t have a business plan yet, this can help). If you realize that hiring employees isn’t necessary, you can skip the rest of the steps and focus your research on finding the right person or agency to work with, get recommendations and start meeting. Be sure you understand the differences, though, between independent contractors and salaried employees, as there are important implications for taxes and for state and federal Department of Labor regulations (here’s helpful information about independent contractors and taxes).
Step 2: Determine the minimum number of hours per week that you need covered to provide the benefits you need
It’s always easier to add staff or hours than it is to scale back, so before you hire anyone, figure out the minimum amount of time that you need assistance. For example, do you need someone half a day, Monday through Friday, to welcome clients during your office hours? Do you need additional help in your restaurant’s kitchen during your busy season? Is a store manager needed so that you can spend less time on the shop floor and more time growing operations? Once you have that information, you can begin to develop your daily, weekly or monthly staffing budget.
Step 3: Consider all hiring options
Given the expenses related to new employees, it’s wise to consider all options. Can you scale-up incrementally to reduce the financial burden? Hiring short-term paid interns or, if your business is cyclical, hiring seasonally or using temporary help or contract hires could be lower-cost solutions, too. Keep in mind, though, that it’s expensive to hire employees in part because of the training involved – when possible, give short-term employees or interns more basic tasks.
Step 4: Research rates for comparable positions in your field and geographic area
What’s the going rate in your area for the kinds of positions that you’re looking to fill? Usually, this information is easy to find – you’ll either already know it from working in your industry or can get it from colleagues or job ads. Since you’ve already figured out the minimum number of hours you need covered, you can now figure out how much it’ll cost you per day, week or month to fill the positions. Remember to also include any necessary insurances or other fees, like disability, employment taxes and workers’ compensation coverage (depending on your industry, city, county, or state).
Is it necessary to offer benefits? Things like contributions to health care or retirement plans are great for attracting and keeping good employees, but are also expensive for most small businesses to offer, especially in the early stages of startup or growth. Research costs, any federal requirements, and what your key competitors offer before you decide on a benefits package.
Step 5: Review your cash flow and financial projections
Look at your current financial projections (if you need help creating them, try this financial projections guide), and also create a revised version to account for the additional expense of new employees. Do you, or will you, have enough revenue to support additional positions? Can you increase working capital to support employees? Is a small business loan necessary or prudent? Will your additional employees directly result in increased sales, too? Make sure to account for anticipated revenue generated as well as expenses to give you a more realistic picture.
If your business needs employees to launch or grow, have a plan in place so that you budget conservatively, consider all options and make the right decisions, and prepare for additional needed working capital, if necessary. For more information on how to hire great employees, see this EGF article. And if you need more working capital to enable you to effectively staff your business, contact EGF’s Business Advisory Services team today for a meeting.
About Excelsior Growth Fund
Excelsior Growth Fund (EGF) helps businesses in New Jersey, New York and Pennsylvania grow by providing streamlined access to business loans and advisory services. EGF’s signature product, the EGF SmartLoan™, provides up to $100,000 in fast, transparent, and affordable financing through a secure online platform. Larger loans up to $500,000 are also available. EGF is a nonprofit organization and is certified by U.S. Department of Treasury as a Community Development Financial Institution (CDFI). Learn more at www.excelsiorgrowthfund.org.