Hiring your first employee is a big step and pulling the trigger can be a tough decision. How do you know when the time is right? When can you be sure that you are not adding unnecessary expense to your business?
The simplest rule to follow 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. A large portion of the cost will be compensation. This 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 numerous regulations and taxes. Having hired our first employee, we can attest that this burden is not inconsequential.
2. Additional revenue you will be able to generate. Hopefully your new employee will help you to increase your revenue. He or she may bring in revenue by selling or by expanding your company’s 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. Spend some time determining what revenue you believe you will gain by bringing on the new employee.
Related: Tips for Hiring Your First Employee
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 other expenses. For example, your new employee may perform functions that were previously outsourced, reducing what you pay to these outside vendors. Make a list of these savings and add them to your tally.
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 easy. 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 to long-term success.
Hiring your first employee is a big decision, but, at some point, you’ll have to do it if your business is to grow. The guidelines above can help you determine when the time is right to make that move.
Copyright © 2013 Entrepreneur.com, Inc.