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How To Tell If It’s Time To Hire

Paul Smith

Photo by Hilary Ehlen

Recently, I was meeting with a solopreneur client who said her small business has quickly grown to the point that she has more business than she can handle, and she feels “maxed out.” She had come to the conclusion that the only way to keep growing – and growing more profitable – is to hire an employee. At some point, most entrepreneurs come to the point of asking the question: “How do I know when it’s time to hire my first employee?”

While this may seem like a fairly straight forward question, the answer isn’t always so obvious. Becoming an employer is a big decision with significant consequences. Determining who to hire, how to hire, and when to hire can make the difference between business success and failure. If you hire too early, you will likely have cash-flow problems, the added stress of management and a worker who sits idle. On the other hand, if you wait too long, you could impede company growth and be inundated with more work than you can handle.

Not surprisingly, there is no single “right” answer for every business, but here are some guidelines which I have found helpful: 

Below are some things to consider before posting an ad for a position:

  1. What is your vision for your business? –What is your value proposition? What customer problem(s) are you solving? And for whom? What are the primary ways in which you interact with and support your customers? Does your business rely heavily on automated services or on personal service? Do you want to scale your business? If so, how large do you want to grow your business? Do you need staff or could you do just as well with virtual assistants?
  2. Do you really need help? – Have you had to turn down work because you can’t take on another project? Are you having difficulty finding enough hours in the day to stay on top of your business in spite of being organized and efficient with your time? Are you consistently missing customer deadlines? One of the biggest risks to an overextended entrepreneur is not being able to take care of your existing customers. The loss of just one client may cost more than the salary of one employee. And while losing one client is bad, losing a client who tells others is worse. The reputation of your business is on the line.
  3. What help do you need? – Before posting an ad, you’ll want to sit down and identify exactly where you need the help. Do you need a social media expert, customer service rep, bookkeeper, administrative assistant or something else? Take time to write down clearly defined roles, responsibilities and expectations – even if these are subject to change. Otherwise, the result is likely to be lack of clarity, confusion and frustration.
  4. W2 or 1099? – If you have decided your business needs additional help and you have identified the help you need, you have several options. You can hire a full or part-time W2 employee, or you can outsource to a 1099 contractor. More than one in three small businesses currently outsource at least some of their operations in areas such as accounting, marketing, IT, customer service and human resources. Outsourcing allows you to get more done without taking on an employee and all of the additional administrative responsibilities that go with it such as payroll taxes and compliance with federal and state regulations. It also allows you to manage costs and focus on the parts of your business that you actually enjoy and are good at. Lastly, outsourcing allows you to assess the long-term need and skill set required for this position before taking the plunge into employment.
  5. Can you afford it? – Before adding staff or making a commitment to outsource a particular task, take time to understand the additional expenses your business will incur as well as the benefits you expect to receive. Hiring an employee or outsourcing will increase your overhead expenses and reduce your overall profits (at least initially). If you hire an employee, do you have the cash flow to pay an employee and to cover the required payroll taxes, insurance expenses and other benefits? You don’t want to have to lay someone off soon after hiring them.
  6. Can you manage people? – If you have determined the need to hire, and you can afford it, that new employee will need to be managed. Are you effective at managing people? Do you enjoy it? Do you need additional training or resources in order to be an effective manager? Hiring your first employee requires a significant upfront and ongoing investment of time. Even the most qualified employee will need time to get up to speed and learn your business and how to perform their job well.

Lastly, don’t be afraid to reach out for help. There are lots of great resources such as the SBDC, SCORE and WBC, which provide free, confidential counseling services, as well as fee-based business advisors, which provide small business owners with the knowledge and tools they need to manage and grow their companies. I also strongly encourage clients, especially solopreneurs, to connect with at least one more experienced small business owner (a mentor) who you trust and can call for sound advice and support. 

Paul Smith
Smith is Director of the ND Small Business Development Centers (ND SBDC) – Fargo. As an SBA resource partner, the ND SBDC helps North Dakota small business owners to start, manage and grow their companies by providing free, confidential business advising services in a wide range of areas such as business setup and planning, financial projections and getting funded. The program assists more than 1,000 clients each year through nine service Centers located across the state. The Fargo Center is located in the NDSU Research and Technology Park Incubator. To register for counseling services, please visit ndsbdc.org.

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