When to Start Hiring Employees for Your Small Business

Is it time for your small business to start hiring employees?

Hiring your first employee is a huge milestone for a small business owner. It means you're ready to scale, to stop doing everything yourself, to take on new customers, or free up more time for business growth.

Yet, knowing when to start hiring new employees is critical.

Hire too early and you may run into cash flow problems.

Hire too late and you could be too stressed and overtasked to find the right person and train them properly.

Here are some of the signs that it's the right time to hire, and a few signs that maybe it's not.

When to Start Hiring Employees

Knowing the right time to hire can be tough. It's a careful balancing act to ensure you have enough work to warrant a new hire and enough profit coming in to pay an employee's wages, insurance benefits, equipment, and maybe some extra coffee pods, too. 

Here are nine signs that the time to hire is now.

You're Turning Down Work

If you've been building up a decent amount of work as a solo business owner but have gotten so busy that you're turning down work, it's a good sign that hiring makes sense.

You're only one person and there are only so many hours in the day.

If you are turning down jobs or projects from potential clients, consider the cost.

Regularly turning down existing clients could send them off to a competitor; after all, customer loyalty only goes so far. And turning down potential new clients will ensure they never get to see how wonderful your project or process is.

Getting new clients is one of the hardest parts of running a successful business. If you've mastered that to the point that you have too much work, it's probably better to hire so you can keep saying yes to the people who are asking to work with you.

Your Quality Is Suffering

Cutting corners may help you reach your deadlines in the short-term, but it's more than likely to negatively impact the quality of your goods or services in the long run.

If you are drowning in orders and the quality of your work is sacrificed to get them all done yourself, hiring could be the answer.

Don't wait too long. Not only do you need to carve out time to find the right employee but you'll also need some time to train them to produce the product, serve the customer, or complete the project to your standard.

If you're so busy that you're cutting corners and sacrificing quality on your own, think of how much your quality may suffer while you're in the hiring-and-training phase.

There's naturally going to be a dip in your productivity during hiring. So waiting until you're so overwhelmed by orders and client requests could be a problem.

Hire early enough that you can maintain your standards of work.

Your Customers Are Complaining

Thinking you can cut corners will certainly bring you immediate feedback from your customers. Unfortunately, customer complaints can be a sign that you need to bring on some help in your business.

Whether you're receiving complaints about the quality of your work, the time it takes to start a new project, their ability to reach someone during business hours, or any other frustration, customer complaints can be a valuable learning tool for your business.

Maybe you can get more done with an extra set of hands helping you in the shop or on location, or maybe your business will run smoother with someone answering phones and setting appointments for you.

Either way, consider an increase in customer dissatisfaction as a grave warning that it's time to expand before you lose business.

You Want To Scale

Do you have a new product or service you want to launch? Maybe a new territory to expand into?

Scaling your business can be an endeavor that brings in new customers and more profits. Or, it can be a mistake that brings in more headaches, mistakes, and complaints.

The difference between scaling success and failure may just be a well-trained employee who can help you take your business to the next level.

Before you start looking for a second location or promoting that new product, consider how your resources will be distributed. Can you handle the extra demands of scaling on your own, or is now a good time to get your support system up and running?

You Don't Have Time To Run Your Business

Sometimes, you get so busy doing your business that you don't have enough time to run your business.

Being a business owner requires more than just the doing, making, or serving.

You need to be a marketing strategist, an accountant, and a tax professional. You need to stay on top of supplies and equipment ordering. You've got bills to pay, vendors to connect with, and relationships to build.

Maybe you love the "doing" aspect.

Then it might be better to hire someone to take on the running.

There's no rule that you can't continue to make the things, provide the service, or engage with the customers. You don't have to hand off the part of the business where your talents and passion have helped you succeed.

Hiring a bookkeeper, administrative assistant, appointment setter, or marketing assistant could be the answer.

You Can't Get Away

When you're running a business by yourself, getting away can feel next to impossible.

Whether it's taking an afternoon off to watch your kid play a ball game or get to a doctor's appointment, a weekend getaway with your spouse, or a vacation to unwind, time away is critical to ensuring you don't burn out in your business or let your health suffer.

If you've said no to every personal appointment reminder, vacation request, or family event for as long as you can remember, you're time-poor.

You can always find creative new ways to bring in more cash.

But there's no way to recover lost time.

The antidote to time-poor is well-staffed. Stop saying no to your life outside of business and start looking for a qualified individual who can help you step away from time to time.

Your Growth Has Stalled

Do your P&L reports or marketing dashboards look more like a flat-line than an upward climb? Stagnancy could be a sign that you need help in your business.

Hiring an employee could help you refocus on what's worked in your business in the past, trimming unnecessary products or goods and doubling down on the things that bring in easy cash.

An employee could help you streamline your processes and complete double the work in less time or take on the administrative tasks that keep you from saying yes to new clients.

If you feel like your business has stalled or become stagnant, a new hire could be a path for new products, goods, or services to come to life.

Your Business is Consistent

Is your business operating from a place of feast or famine, or do you have consistency?

If you have predictable, consistent income and profits, it makes the hiring decision much easier.

Consistent, predictable income tells you whether you can afford a new worker.

Consistent income helps you understand if you can afford the cost of workers compensation insurance, which is required by law in nearly every state — even if you only have a single employee.

You Can Afford It!

The biggest green flag that you're ready to hire is understanding the true cost of hiring and being able to afford it.

The cost of an employee goes beyond just what you will pay out in an hourly wage.

According to the SBA, the rule of thumb is the true cost of an employee is typically 1.25 to 1.4 times the salary, depending on certain variables.

In addition to wages, your cost to hire an employee include:

  • Employer share of FICA (7.65% on compensation up to the annual wage base, which is $160,200 in 2023, plus 1.45% on compensation over the annual wage base).
  • Federal unemployment tax (FUTA) of $42 per employee.
  • State unemployment tax, which varies from state to state.
  • Workers' compensation insurance (required once you hire your first employee).
  • Other insurance or bonds you may be required to carry to operate your business, such as contractor license bonds or commercial auto insurance if your business owns or operates a vehicle for business purposes

When Not to Start Hiring

These are a few of the signs that it's time to hire your first employee. However, knowing when not to hire is just as crucial to protect your cash flow and help your business survive.

If you just got your business up and running and you're more than capable of handling it yourself, it may be too early to start hiring. Spending some time learning about the business you launched can help you understand the ebb and flow of cash, understand your customers and their buying motivations, and get a handle on the workflow or processes required to get your product or service in their hands.

If you're spending a good portion of time looking for more work, you may have too much bandwidth to hire right away.

If you're short on cash, you probably don't want to start hiring. Also, if your income is unpredictable or inconsistent, adding an employee could be a strain during the months when cash is tight.

Lastly, it's probably not the right time to hire someone if you can't take the time to hire, train, and retain the right people. 

  • According to data provided by the Association for Talent Development, the average training cost per employee is $1,252.
  • According to Employee Benefit News, employers spend an average of 33% of a worker's annual salary to replace just one employee.

If you hire the wrong person, or don't adequately train and retain the right ones, it could be a serious drain on your cash flow and profitability.

Hire the right employees, and it may help you scale and grow your business, free up more time for you to work on the business, give you opportunities to step away when needed, and help increase your profitability.

Want to better estimate the true cost of an employee for your small business? Get a no-obligation workers compensation insurance quote from Aegis Insurance Markets.




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