Q: When is it time for an entrepreneur to hire his or her first employee?
A: Hiring your first employee is a big step. Many entrepreneurs struggle with when to pull the trigger. The short answer is that you should hire your first employee when the incremental cost is justified by any combination of three items: increased revenue, lower expense, and reduced workload for you. In order to make this assessment, you’ll need to understand four things.
The true cost of your first employee – Make no mistake, hiring your first employee will be expensive. To be sure, a large portion of the cost will be compensation. This portion of the expense can be mitigated by employing part-time, rather than full-time, help. However, the cost of your first employee goes well beyond the paychecks you’ll write. You’ll have to spend time and effort to complete the hiring process and then to manage the employee once he or she is on board. You may need to purchase new equipment (e.g., a computer, desk, and chair). New office space may be required. Not insignificantly, your business will become subject to a plethora of new regulations and taxes. Having hired our first employee, we can attest that this burden is not inconsequential. It’s amazing that a government that’s so focused on reducing unemployment, makes it so difficult to hire an employee and yet, it does.
Additional revenue you will be able to generate – Your new employee may bring in revenue by selling. He or she may increase your capacity to deliver a product or service that fills existing demand. Perhaps the new employee will simply relieve you of administrative duties that will allow you more time to sell and deliver your product or service. Each of these activities will bring incremental revenue to your firm.
Expenses you will be able to reduce – Your new employee will surely increase certain costs. However, he or she may also enable you to reduce certain expenses. For example, your new employee may perform functions that were previously outsourced reducing what you pay to these outside vendors.
The personal benefit of a reduced workload – The three items above are all quantifiable (although admittedly, some will be estimates). You can run the numbers and determine if hiring your first employee will represent a net increase or decrease to your bottom line. If the result is more profit, the decision is a slam-dunk. However, even if your new employee is a net drain on the bottom line, making your first hire may be a good decision if it gives you, at least, some of your life back. Remember, in the long run, working at a pace that is sustainable for you and your family is critical.
Hiring your first employee is a big decision, but, at some point, you’ll have to do it if your business is to grow. The guidelines above can help you determine when the time is right to make that move.