Hiring someone new is a big step, especially for startups and small businesses. When budgets are tight and sales are picking up, adding someone to your payroll can feel like a lot of pressure on your cash flow. But don’t let that scare you. With the right tools and insights, you can make a confident, informed decision about whether it’s the right time to grow your team.
To help, we’ve laid out a few key questions to guide you through the process of figuring out if your business is ready to hire. At the end of the day, the choice really depends on how much risk you’re comfortable taking. Growth always involves a bit of uncertainty, but knowing your numbers can help you feel more prepared.
And speaking of numbers, we created a really great cost-per-hire calculator to show you the financial impact of bringing on a new employee—so you can make the best decision for your business.
Is Additional Help Really Needed?
The best place to start is by assessing whether you truly need additional help. Sometimes, the workload might feel overwhelming due to an influx of client orders or projects, prompting thoughts of expanding your team. However, it’s important to evaluate the consistency of these demands. Are your busiest days sporadic, occurring just once or twice a week? Or has the workload become a daily challenge, straining your current capacity?
Consider your long-term sustainability as well. Can you continue managing all tasks without compromising quality or your well-being? If your business is scaling rapidly or your health is taking a hit, it might be time to delegate tasks so you can focus on strategy.
Also, think about the opportunity cost. Could a new hire help you focus on growth areas like client acquisition or product development? If busy days are just occasional hurdles, a contractor might suffice (as we’ll discuss next). But if sustained growth is your goal, a long-term team member might be a better fit.
Do You Need Someone Full-time or Not?
If you’ve decided that additional help is necessary, the next step is determining whether you need someone full-time or part-time. Full-time employees can provide more stability and availability, but they also come with additional costs, such as benefits and payroll taxes. On the other hand, contractors or freelancers might be more cost-effective for short-term or non-core tasks.
It’s crucial to categorize your tasks into core and non-core functions.
Core vs. Non-core Tasks
Core tasks are responsibilities that directly align with your business’s mission, vision, and objectives—like client-facing roles in the service industry. These are often best suited for full-time employees who can provide consistent performance and accountability.
Non-core tasks, such as bookkeeping, tax compliance, or administrative support, don’t directly impact your main business goals but support essential operations. These are typically more appropriate for freelancers or contractors.
However, it’s important to note that the distinction between a contractor and an employee isn’t just a matter of preference. The IRS has strict guidelines to determine whether someone is classified as an employee or a contractor. Misclassifying a worker can lead to significant penalties, so it’s crucial to consult a professional or do your research before making this decision.
What Are the Hidden Costs of Hiring?
Hiring a new employee involves more than just their salary. You’ll need to account for hidden costs, such as:
- Benefits (health insurance, retirement plans, paid time off, etc.)
- Payroll taxes (Social Security, Medicare, and unemployment taxes)
- Payroll service fees (if you use an external provider to process payments)
- Onboarding and training expenses
- Equipment or tools (laptops, software, uniforms, etc.)
Our cost-per-hire calculator breaks these costs down to give you a realistic picture of your total hiring expenses. Understanding these numbers is essential for making an informed decision.
How are The Business’ Finances Going?
What’s the money situation? That’s the million-dollar question. Even if you’ve identified the need for another employee, you must take a hard look at your finances. Is your business generating enough revenue to comfortably cover their compensation and benefits? If the answer is yes, that’s a solid indicator that you’re ready to hire. But if your business is in a tight spot, it’s wise to hold off, especially if you’re actively cutting costs.
Avoid the temptation to hire someone at a bargain by offering below-market pay. You’ll get exactly what you pay for mediocre performance. If you can’t afford to offer competitive compensation, it’s better to wait. Well-compensated employees tend to exceed expectations, while underpaid employees are more likely to do the bare minimum.
Do You Have at Least 3 to 6 Months of Emergency Fund?
Lastly, let’s talk about sustainability. Employees value long-term job security, and as an employer, it’s your responsibility to provide that. If you’re bringing someone on board, ensure you can afford to pay them for at least the next three to six months. This means having an emergency fund in place. For example, if you’re paying an employee $3,000 a month, you’ll need an emergency fund of $6,000 to $18,000 to cover their salary in case your business hits a rough patch. This safety net allows you to retain your employees while you work on getting the business back on track.
Hear Straight From our Experts
Knowing how to afford another employee isn’t a one-size-fits-all formula. We wish it were that simple, but every business has its own unique financial situation. At Mahoney CPA, we’re dedicated to helping Denver businesses navigate these challenges with expert advice and top-notch services. Your success is our priority, and we’re here to make your growth journey as smooth as possible.
Ready to take the next step? Contact our experts today, and let’s get started!
