Monday, March 14, 2011

When is the Right Time to Hire?

I've had this question asked of me a lot lately: "Is it time for me to hire another employee?" I also hear questions like: "Is it time for me hire?" or "When can I add another manager to take some of the load I have been carrying?"

This is probably a good sign that entrepreneurs are experiencing some business growth but are cautious about hiring too quickly or being over-staffed, especially if their business does not maintain its current levels of business with some promise for future growth. Whatever is causing their need to know, each one of them needs to carefully consider the 6 Steps to a Good Hire that I wrote for American Express OPEN Forum. In addition to those six steps, I have some additional thoughts for your consideration.

Each industry has benchmarks for labor costs, and there are also plenty of general guidelines to follow in terms of what your business can afford and what makes sense in your business model. You should collaborate with as many of these resources as possible to properly staff your business.

For example, I recently completed an initial 5-Year IMPACT Forecaster for a customer and we could easily see when the business growth would justify new hires. With input from the entrepreneur and several other resources, we were able to etermine which employees would be more critical at certain phases of the business growth and allocated the new hires to those departments at the most opportune and effective times in the growth cycle.

If you are starting to feel overwhelmed with your business growth and are wondering when you should hire either your first (besides yourself) or an additional executive to your team, your financial validation for the addition can come from several sources. First, you might find that your revenue per employee is higher than the average and you are confident that the added cost will not impair your cash flow or profitability. Second, you may find that your industry spends, on average, 4.5% of its total revenue on executive compensation. If you are lower than that, or will be soon, it may be time to make the hire. Third, if you look at the organization chart of other organizations like yours and find they have more executives and managers than you (relative to size of organization), then you may find value in getting more leadership help.