It’s a good sign when leads start converting, your client base is growing and the workload is increasing. But that success can create a new challenge: capacity.
Your team may be working longer hours, senior people may be spending too much time on lower-value tasks, and customer response times may start slipping. Before long, bringing another person into the business can feel like the obvious next step.
But being busy doesn’t necessarily mean your business is ready to hire.
Before advertising a new position, and particularly in a time of high unemployment when applications will be numerous, it’s worth stepping back and asking: Can the business afford another employee, and what does that person need to contribute to make the investment worthwhile?
Look beyond the salary
The salary is only the starting point when calculating the financial impact of a new employee. Depending on the role and circumstances, the true cost can also include employer KiwiSaver contributions, ACC levies, recruitment costs, onboarding, equipment, software licences, training and other employee-related expenses.
There is also the less visible cost of getting someone up to speed. Existing team members may need to dedicate time to training and supervision, while the new employee may take several months to reach their expected level of productivity.
Before recruiting, calculate the total cost of employing the person, rather than looking at salary alone.
1. Cashflow: can you sustainably carry the cost?
A profitable business can still experience periods of tight cashflow.
- Look at your cashflow forecast and consider whether the business can comfortably meet the additional employment costs each month, not just when sales are strong, but during quieter periods too.
- Run different scenarios. What happens if revenue is lower than forecast? What if a major customer pays late? What if it takes longer than expected for the new employee to become productive?
Hiring creates an ongoing financial commitment, so your forecast should give you confidence that the business has sufficient resilience to carry that commitment.
2. Capacity: what problem will the new hire solve?
Before creating a job description, clearly identify the issues you’re wanting to resolve.
- Perhaps senior employees are spending too much time on administration. Maybe the business is turning down opportunities because the team doesn’t have capacity. Or customer service is being affected because existing employees are stretched.
A new hire should create measurable capacity somewhere in the business. For example, employing an administrator may not directly generate revenue, but if they free up a senior employee to spend another 10 hours each week on client work or business development, that additional capacity has a commercial value.
Understanding what changes after the person joins makes it easier to determine whether the hire stacks up financially.
3. Return: what will the business get from the investment?
Every hire should have a clear business case. Consider what additional revenue, capacity, productivity or efficiency the role is expected to create.
- If it’s a revenue-generating position, how much additional work will the business need to win for the role to pay for itself?
- For a support position, could the hire improve turnaround times, increase the capacity of other employees, reduce errors or allow business owners to focus on higher-value activities?
Setting expectations before recruitment also gives you something meaningful to measure once the employee is established.
4. Timing: is now the right time?
Sometimes the business needs to invest in capacity before the additional revenue arrives. That’s a normal part of growth, provided you have the financial resources to support it.
Your forecasts can help determine whether now is the right time.
- Would employing someone today allow you to capitalise on a strong pipeline of opportunities? Or would another three to six months of growth put the business in a considerably stronger position?
Consider modelling both scenarios. Waiting too long can create its own costs through employee burnout, lost opportunities and declining service. Hiring too early, however, can place unnecessary pressure on cashflow. The goal is to find the point where the opportunity and the numbers align.
5. Alternatives: is another employee the best solution?
Finally, don’t assume additional workload automatically requires another permanent employee.
Look at the underlying processes first.
- Could repetitive work be automated? Could better systems eliminate double-handling? Could responsibilities be redistributed across the existing team? Would outsourcing specialist or intermittent work be more appropriate?
Sometimes those changes solve the capacity problem without increasing permanent overheads. In other cases, they confirm that another employee really is the right investment.
Make hiring a financial decision as well as a people decision
Not every benefit of a new hire will appear immediately on a spreadsheet. The right person can bring fresh thinking, new skills and experience, stronger communication and a different perspective on how things could be done. They can strengthen your team culture, build better client relationships and free up business owners and senior employees to focus on the work where they add the most value.
While these benefits can be harder to quantify, they can have a significant impact on the long-term performance of the business. Ultimately, a successful hire is about finding the right balance, someone the business can sustainably afford, but who also adds capability, energy and value to the team.
If you’re considering adding to your team, we’re happy to be a sounding board to help make that decision the right one for your business.
Get in touch with the Auctus team today.
