How do you decide that it’s time to hire an employee? And then, which kind of employee do you need to hire? One that can churn out more code, spreadsheets or widgets?
Or maybe you need one that doesn't make or build, but instead manages, directs, communicates or facilitates tasks that are associated with your business' projects and personnel.
There is no one-size-fits-all employee, but you can take a look around your work space and divide pretty much everyone into 2 groups - makers, those who produce whatever it is that your business produces to generate direct revenue, and facilitators, those who work on all the other business stuff that isn't directly involved in making a deliverable.There is some crossover with every employee, but the question remains, is that crossover productive for your business and how can you tell? Further, how do you know who to hire in order to build the capacity of your business in the right direction?
From a cash flow perspective, their payroll equation is roughly linear: more hours = more revenue. More employees hired = more wages = more capacity for new work, and hopefully, more revenue generated for a fixed cost.
The facilitator's equation looks less linear. Often, they bill few to no hours directly to a particular project or product. Often their role involves streamlining, communicating, error-checking and management. These tasks free up the 'billable' roles to generate more hours with the net result of higher overall revenue in exchange for their salary.
So Who Do You Choose?
Bringing in a maker that has the exact skill set that is billable to current and future projects (developers, designers, welders, accountants, other skilled or professional workers) or those who can fill the pipeline (sales) increases the capacity of your business and allows you to scale up. With another maker in place, can you spend more time on your business and doing what you do best?
At first, hiring a facilitator (admin personnel, HR, project manager, or IT support) may seem like ill-used revenue but facilitators are adept at tasks such as management, research and administration - major factors in cost control. They often also help a business avoid pitfalls. For instance, as a point of contact for clients and personnel throughout a project, the facilitator can ensure that details are tended to, and costly mistakes are avoided.
With the big picture in mind, the seasoned facilitator can apply proven cost-saving strategies and innovative processes across the business.
How to Decide
Like many other aspects of running your own business, there are no rules about which type of personnel will help your business hit the gas. Though formulas for billable/non-billable personnel exist, they vary wildly in scope and accuracy and therefore aren't the best way to assess your business.
For example, with enough projects coming down the pipeline, it may be important to hire billable personnel to meet your upcoming capacity...provided the pipeline stays full and there's enough contracts, equipment and resources for them to use.
On the other hand, a facilitator could be the right move, again, if the pipeline stays full and projects are generating enough revenue to cover the associated non-billable payroll costs. The tactic we've chosen here is posing questions that only you and your strategic team can answer about your unique needs. Your answers will help you determine your personnel needs.
Factors to Consider Before You Hire
How much are you paying out in overtime - in dollars, hours, and per employee? Is there a particular employee that seems to always have OT to manage?
That might be a role that needs extra personnel.
Lost Time to Administration:
How much time are you as the business owner spending on administrative tasks compared to your core role (the work that you really value, that you're great at, and that is your businesses lifeblood)?
Long Term Need:
How long have you been considering a new hire/new role in your business? Hiring on a whim can let your business down.
Creating a Role:
Have you made a list of the exact skills and tasks that you need to cover? The list will allow you to plan, cost, and search for the right person for the job.
In order to get the wording and role exactly right, selecting key phrases is encouraged from the sites like Indeed.com
Keep Your Pipeline Full:
Is there enough work coming in to keep your new hire busy on a stream of projects or facilitation tasks? Will the pipeline stay full enough to justify the expense of another employee?
What is the plan to keep the pipeline full? If no plan, consider contracting work to a freelancer instead of incurring employee costs.
Bankroll for Salary:
Is there enough profit to pull a new salary from? Bankroll at least a quarter's worth before hiring.
How many hours do your billable employees spend on non-billable tasks? How are the number of hours and rate of pay calculated for this? These figures will help drive the savings/spend equation for a new hire to fill the role.
Your Unique Success Metrics:
What are the unique metrics you've created that indicate that you're meeting or falling short of your targets for work, for profit, for productivity?
Consider setting targets to measure these successes and built-in benchmarks to communicate about results. From there you'll be able to determine next steps in your hiring strategy.
Cash Flow Forecasting:
Will your cash flow align with revenue goals when you have the additional employee costs?
Salary Range Considerations:
What is the salary range like for your potential hire in your area?
New Hire Experience vs Expense:
Where is your comfort level between years of experience and salary expectations? What is your need for experience? (which may be different from your comfort level)
New Hire Learning Curve:
Consider forecasting your new hire's knowledge acquisition arc, project load, and professional growth over the first year or two - map it against your cash flow if you can, with the intent to create an accurate picture of their value vs. expenses.Finally, strongly consider taking your homework from this article to your accountant in order to strategize next steps.
A final word:
Every business is unique, and so is every role that you create to grow your business. While hiring is always more of an art than a science to get the right person in the right job, one of your success criteria should be that everyone in your organization will be able to refocus on their area of specialty.
Bear in mind that the process requires patience and time investment that you may need to buckle down to give because it's only with careful consideration of a variety of factors that you'll find the right employee for you.
Dryrun can help you take control of your cash flow, understand your business and plan for growth.