WHEN TO HIRE YOUR FIRST EMPLOYEE
Eleven years ago I started
a gift making business. I was able to grow her to make profit in 2005.
In 2006, the profit tripled but in 2007, a challenge set in: there became more
orders than I was able to supply per time. I improved a lot but I started
having delivery issues with orders. I didn’t employ my first employee that year
and the business lost customers
and profit dipped.
and profit dipped.
Two years later, the
business hit the stage again but didn’t make any profit and struggled through
2010 and in 2011, profits hit double digit and I hit the same roof like 2007:
more orders, and this time, across states. Unfortunately, I didn’t decide when
to employ my first employee to help me cope with growth and the business slumped
again. Yes, the business slumped. That was one of my businesses, what
about yours? You see, you need to decide when to make the move.
So, when is it time for a small business owner to hire
his or her first employee? When the time is ripe and right, you will know. I never
knew then, or maybe I was focused on developing another business: One of the
reasons stated in How the Mighty Fall by Jim Collins.
Hiring your first employee
is a big step. Many entrepreneurs struggle with when to pull the trigger. The
short answer is that you should hire your first employee when the incremental
cost is justified by any combination of three items: increased revenue, lower
expense, and reduced workload for you. In order to make this assessment, you’ll
need to understand four things.
1. The true cost of your
first employee
Make no mistake; hiring your first employee will be
expensive. To be sure, a large portion of the cost will be compensation. This
portion of the expense can be mitigated by employing part-time, rather than
full-time, help. However, the cost of your first employee goes well beyond the
paychecks you’ll write. You’ll have to
spend time and effort to complete the hiring process and then to manage the employee once he or she is on board.
You may need to purchase new equipment (e.g., a computer, desk, and chair). New
office space may be required. Not insignificantly, your business will become
subject to a plethora of new regulations and taxes. Having hired our first
employee, we can attest that this burden is not inconsequential. It’s amazing
that a government that’s so focused on reducing unemployment, makes it so
difficult to hire an employee and yet, it does (not really applicable in
Africa).
2. Additional revenue you
will be able to generate
Your new employee may bring in revenue by selling. He
or she may increase your capacity to deliver a product or service that fills
existing demand. Perhaps the new employee will simply relieve you of
administrative duties that will allow you more time to sell and deliver your
product or service. Each of these activities will bring incremental revenue to
your firm.
3. Expenses you will be
able to reduce
Your new employee will surely increase certain costs.
However, he or she may also enable you to reduce certain expenses. For example,
your new employee may perform functions that were previously outsourced
reducing what you pay to these outside vendors.
4. The personal benefit of
a reduced workload
The three items above are all quantifiable (although
admittedly, some will be estimates). You can run the numbers and determine if
hiring your first employee will represent a net increase or decrease to your
bottom line. If the result is more profit, the decision is a slam-dunk.
However, even if your new employee is a net drain on the bottom line, making
your first hire may be a good decision if it gives you, at least, some of your
life back. Remember, in the long run, working at a pace that is sustainable for
you and your family is critical.
Also read: Signs of A Dying Business, How to Revive a Dying Business, Results and Excuses, Increasing Productivity,
Plan Ahead and Have a Culture of Accountability.
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