Is It Time to Hire an Employee? 0

Overworked business woman surrounded by files

Overwhelmed? It could be time to hire some help.

If you own your own business and find that you simply don’t have enough time on your hands to be able to do all the things you need to do, you may be asking yourself should you hire an employee? 

If you’ve already got employees, your question will be similar, when is the right time to hire another employee? Regardless of the structure of your business, there will be times when you need to make this decision and it’s not always as simple as acknowledging there’s too much on your plate…

To help you figure things out, we asked entrepreneur Kurt Johnson, a Los Angeles resident who has created several businesses including his most recent fitness venture, Swollforlife.com, to help us figure out what to consider before hiring.

Start with a list of advantages and disadvantages

Figuring out whether the time is right, may be as simple as making your own pros and cons list. This is a good first step before you look into cash flow, last year’s financials and your workload. Consider this testing the waters. Here’s an example list:

Advantages of hiring a new employee:

  • You’ll have more help to handle the tasks that are overwhelming you.
  • A new employee can breathe new life into your business and generate new ideas.
  • Someone will be there to share those exciting moments. As Johnson says, you’ll have “someone to high five” when things go right.

Disadvantages of hiring a new employee:

  • An employee costs you money.
  • There are more tax forms to juggle.
  • A new employee requires a big time investment upfront.
  • You’ll carry added stress of another person being dependent on your business.
  • You’ll need to manage and monitor the new employee.

Once you’ve created your list, and perhaps once the advantages outweigh the disadvantages, you can move on to the next step – genuinely trying to work out whether or not you should hire a new employee.

Should you hire a new employee?

Administrator of the SBA, Maria Contreras-Sweet, believes there are 4 things to consider before you take the plunge:

  1. What is your vision for your business? Do you really need staff or additional staff or could you do just as well with virtual assistants or temporary workers? At this stage you’ve got to be honest with yourself – do you want to keep the business small or do you want to become a larger business?
  2. Where do you need help? Review your workload and your project pipeline. Is there anything you could offload on a new employee and if so, what ‘type’ of employee does this work suggest you need to look for? Perhaps a sales rep? Maybe a cashier? Or what about an accountant? Even if your goal is to hire in order to free up your own time, make sure you have a good handle on where that time should be spent so that you can look for someone with the appropriate skill set.
  3. Can you manage people? This is an important consideration. What have your past experiences taught you? If you believe you’ve got the ability to manage, what about the ability to make a good hiring decision? Do you need help?
  4. Can you afford it? Right, so this is probably one of the trickier parts. Take the time to build a picture of the costs and overheads your business will incur as a result of a new employee. Some things to consider: wages, unemployment tax, workers compensation insurance, medicare and social security taxes, recruitment and training costs, benefits, payroll costs, new equipment, software licenses, etc. Once you’ve got a realistic idea of the potential cost of a new employee, try to align this cost with the benefits you’ll get from that new employee. How much new work will you be able to take on? Take a look at your income and expenses from the previous year to assess whether you have the capacity to afford someone. If it looks possible and profitable, consider your pipeline and cash flow. Can you live with not being profitable in the short term or will this cripple your business?

If you’re still unsure about whether or not you can justify hiring an additional employee, it may be worth sitting down to to see if you can pinpoint those signs that say you really should bite the bullet.

Four signs you’re ready to hire

1. When you turn down work

If you have to turn down work because you can’t fit another project into your schedule, it’s a good indicator that your business is ready for help.

“If you’re growth is being inhibited by the hours in a day that you can work, then it’s time to start thinking about another employee so you can retain all available revenue,” Johnson says.

No business owner doesn’t want to earn more money, but some don’t want the added work or complications that come with hiring someone new. Again, you’ll need to be honest with yourself.

2. If you identify a new revenue stream but need additional skills

Diversifying your business is a smart move. Along the way, you’ll probably find a new source of revenue that you could tap, but might lack some of the skills necessary to really dive in.

“Sometimes you will come up with great business ideas that you are just not personally equipped to execute on,” Johnson says. “This is a great problem to have and the right employee can truly make the difference in taking your business to the next level.”

3. If complaints are rolling in

If you’re spreading yourself too thin, it shows.

If customers start complaining about your work or about your timeliness, it’s a sign that you’re spread too thin. If you’re not able to commit yourself to each and every project, you’ll want to hire an additional employee. Bad word of mouth can damage your reputation and revenue, so you should hire someone soon if this is happening at your business. Even if you are just bringing someone in to answer your phones, field emails, or tackle your accounting practices, you will get those hours back to commit to clients.

4. When you have a steady stream of revenue

It takes a while for businesses to gain a steady stream of income, and you don’t want to take on an employee until that happens. An employee can help your business grow, but before making any staff additions, you’ll want to make sure you have the revenue available to pay him or her.

Weigh your options

If you decide that your business is ready to hire an employee, you do have several options. You can hire someone full or part time as a W2 employee, or you can hire someone on an as needed basis as a 1099 employee. If you hire someone as a W2 employee, you are responsible for paying taxes. If you hire via a 1099, the employee is responsible for his or her own taxes.

Johnson suggests starting with a part-time 1099 employee to see how much help you need and how the additional employee works within your business. Once you’re ready to bring on a full time employee, Johnson suggests consulting an attorney to make sure your business complies with all tax and healthcare regulations.

If you began your business on your own, when did you decide to hire your first employee, and what made you decide? Share your stories and advice in the comments below.

About the Author Lisa Furgison is a journalist with a decade of experience in all facets of media. Follow Lisa on Google+ Read more »

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