Can you afford that new hire?

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Can you afford to hire that next team member?

Hi, this is Judi Otton with GrowthCast, and that is probably the most common question I get from business owners. Can I afford to hire this person or that person? And today, I’m going to give you the same things that I look at when I’m making that assessment for my clients.

First of all, you need to look at your current financial situation, both your profitability and your cash flow, as well as your cash reserves. I had one client ask me that question. Can I afford to hire this highly compensated person to my team? And I knew she was very, very profitable, but I still went through the exercises of looking at her profitability historically, and we’ll talk about the future in a minute, looking at her cash flow, which can be different because of the timing and looking at her cash reserves. And I was very confident when I said to her, yes, you can afford to hire this person.

Sometimes, it’s not so clear-cut, though. Sometimes, your profitability may not be quite enough to hire this person. When you’re thinking about what it costs to hire them, I want you to look at the total cost. So yes, there’s, there’s the salary, but there’s also taxes, benefits, time off, equipment, software, training. It’s not just about the number that you’re going to pay them. So I need you to weigh that against, you know, maybe your profitability isn’t quite there.  But the third piece is – what is this person going to bring to the table? Are they going to bring in sales? Are they going to give you the capacity to do more work? Ideally, paying this person and hiring this person will help you grow your business. So you have to weigh that against, you know what their salary is going to cost, what your current financial situation is.

The real answer, the long-term way to figure this out, is to have a budget in place. If you have a budget in place, it becomes very clear whether you can hire this person or not. You’re going to forecast your future revenue and sales growth. You’ll be able to lay in all the costs of the employee and you’ll see what that’s going to look like for your bottom line.

I realize there’s a lot here. If you have any questions about this, please don’t hesitate to reach out. I’m happy to have a conversation with you. This is Judi Otton with GrowthCast, and I’ll be back next week with a new Fiscal Fitness Tip of the Week.