Technology has made it easier than ever to run a successful business all on your own. But for those small business owners hoping to grow their companies, at some point you’ll likely need to consider hiring your first employee.
But how do you know when the time is right? Here are 4 questions to ask.
If your business has a lot of ups and downs in terms of cash flow—for example, if you own a seasonal business—there are probably times when you’re totally swamped and other times when you’re twiddling your thumbs. During the busy times, you might be tempted to hire employees. Not so fast!
Before hiring your first employee, you must have enough steady work to keep them busy even during the slow times. Otherwise, you’ll have to let the employee go—which is unpleasant for both of you. Also, make sure the steady work is something you’re willing to delegate and can train someone else to do.
If you don’t have adequate work for an employee on a steady basis, hiring temporary employees, outsourcing to independent contractors, or taking on an intern is a better solution for those times when you need extra help.
On the other hand, if you’re consistently busy and frequently have more work than you can handle—for example, if you’ve actually had to turn down clients or refer them to other businesses—then you’re probably ready to hire.
As your business grows beyond the fledgling stage, you’ll want to expand into new areas—possibly including areas you lack the experience, time, or skills to tackle effectively.
For example, a jewelry designer who sells their wares online might decide they want to get them into retail stores nationwide, too. If they’re not good at sales or can’t realistically travel around the country on sales calls while still maintaining the rest of the business, hiring an employee to take charge of sales might be the best way to achieve those expansion goals.
Hiring your first employee isn’t cheap. First, there’s the cost of advertising the position, possibly running background checks, and the cost of the time spent reviewing resumes and interviewing candidates.
Once the employee comes onboard, their hourly wages aren’t the only expense you’ll have to deal with. You may need to buy new equipment for the person, like a computer and workstation. You’ll also have to pay social security taxes, Medicare taxes, payroll taxes and state unemployment taxes. If you plan to offer employee benefits, such as health insurance or a 401(k) plan, know that benefits can cost 20% of the employee’s wages or more. Finally, you may need to buy workers’ compensation insurance.
Your business’s cash flow is a deciding factor in whether or not you’re ready to hire. You’ve got to have enough cash in your accounts on payday to cover payroll—you can’t ask employees to wait a couple extra days to get their paychecks because your customers haven’t paid you yet. (If you ever find yourself without adequate cash to make payroll, a short-term loan can help you get over the hump, but this isn’t a solution you should turn to on an ongoing basis.)
As soon as you start the hiring process, you’ll have to comply with state and federal anti-discrimination employment laws when advertising the job, interviewing candidates, testing them, and making your offer. The red tape only gets more tangled once your first employee comes onboard:
If you prefer a simpler solution to your employment needs, outsourcing to independent contractors could be the route for you. Visit your state labor department website for more information about state employment laws; see the Department of Labor website for federal labor laws.
Hiring your first employee isn’t a decision to be made lightly. By asking yourself the questions above, you can make an informed choice—one that helps grow your business.