Small Business Dilemma: When to Hire New Employees?

When should small businesses hire employees?

While a few small businesses may never intend to grow beyond the amount of work that the owner can take on, eventually, most small businesses need employees.

Since bringing on employees is both costly and time-consuming, Excelsior Growth Fund asked for advice and insight from Holly Nowak, President and Lead HR Developer of HMN Resources, LLC. Here are some key signs that it’s time to hire and advice on how to do it well.

Determine what you want for your business

Before hiring staff, the most important things to do are to revisit your business plan and your personal and professional goals.

Maybe your business goals are simple: You want to be self-employed and make a living at something you enjoy and only want to take on business that you can handle yourself. In that case, you may never need to hire anyone else.

As Holly explains, though, “If your business plan includes growth, eventually you’ll hit a wall trying to do everything yourself or with insufficient staff on hand. Then you, your business and your life outside of work will suffer.”

Holly recommends asking yourself some key questions, like:

  • “What’s in my business plan—and has that changed in any way that would impact hiring?”
  • “Do I need to free up time to grow my business, rather than simply run it?”
  • “Do I currently have the time I need to grow my business, not just run it?”
  • “Are there aspects that can free up time so that I can focus on growth—or on my family, friends and life outside of work?”

Look for signs that additional help is needed

Some businesses, like restaurants and retail, inherently need staffing that’s beyond what a sole owner (or a couple of partners) can provide. But for many others, it may be easy to overlook some key signs that additional help is needed.

“An unmet need for staffing eventually causes stress in almost every aspect of business,” explains Holly. “Things like owner or employee burnout are signs, and so is a lack of service or a slip in quality. Also, if you begin turning away business opportunities or clients that you could otherwise take on if you had the right staff level, you should certainly consider hiring, if that kind of growth is in your plans.”

Keep in mind, too, that it’s harder for small businesses to generate new customers than it is to retain current clients, so you want to ensure that those you have are happy with the levels of service or the quality of the products you provide.

“Another consideration is whether there’s a particular skill set that’s lacking among your current team,” adds Holly. “Maybe your business has grown to the point where it makes sense to have a marketing person on hand, or you need more sales staff to meet growth goals. If so, you’re going to need to hire.”

Consider whether outsourcing makes more sense than hiring

Sometimes it’s critical to hire employees directly. Other times, though, it may be more financially feasible to hire freelancers, use temporary staff or to bring on a consultant for a limited time.

“One way to know what can be outsourced is to ask whether a role supports your business or drives it,” says Holly. “Areas that aren’t core to the mission can usually be outsourced.” These often include areas like bookkeeping and accounting, legal, marketing and public relations, human resources and payroll.

A consultant who’s brought in for a limited time, or at regular intervals, can also make a world of difference by helping to find solutions that relieve staff or workload stresses. Most small businesses don’t need a full-time efficiency expert but bringing in one for a few hours a month may work wonders.

Determine the financial impact on your business

Look at where your company stands today, in terms of sales and revenue, and your future projections. How do new hires generate revenue (or make it possible for revenue-generating staff to improve)? Is there a correlation or financial justification for the hire? New sales hires, for example, should show a related growth in sales revenue down the line.

“And remember,” Holly adds, “that experience equals money. If the role you’re hiring for is specialized or if you have a long list of required experience and credentials, expect to pay more.”

“Also, when you’re making the decision to hire,” explains Holly, “it’s crucial to consider that the cost of an employee is well beyond the salary or hourly wage that you’re going to pay. There are taxes and insurances, possibly benefits, and costs of onboarding new employees. These things are essential or required by law and they come with additional costs.”

Figuring an extra 20 to 25% markup over a potential employee’s pay is standard and ensures that when you’re figuring out the financial implications of new hires, you’re fully addressing the costs.

And, importantly, make sure that after you hire someone else, your business can still afford to pay you. Putting off paying themselves is a mistake that many small business owners make and one that leads to unnecessary additional financial and emotional stress.

Be sure you’re hiring the right way

As a word of caution, Holly also says this: “Define the roles that your business will need ahead of time—make them part of your business plan from the start, to the extent that you can predict them—and hire according to that role. Too often, business owners build a role around a person and usually, that’s not the best way to build the business’s team.”

Know that small business loans can help drive growth

Growth takes money, and if your business needs working capital to support growth—including new hires—ensure that the information is reflected in your business plan. If you can show sustainable increased revenues that justify bringing on staff, you can build a solid case for a business loan, and banks and Community Development Financial Institutions (CDFIs, like Excelsior Growth Fund) have several options available.

For more information on how EGF can help your business, contact us today.