Some business owners do not fully consider their hiring needs in advance – the why, what and how. To ensure you hire the right people for your time, you need to be very clear about what position you need to fill, the role he or she will fill, and how this will help you meet your company’s overall goals. These goals may include the following; increase sales, reduce expenses, expand geographic markets or drive improvements in customer service. Being too myopic – i.e., we need someone to take the load off of our office manager/customer service rep – can, and often will, lead to hiring mistakes.
Below is a methodology to follow to help you think through your hiring needs.
1. Identify the need to fill the position.
A manager may determine that he or she needs additional personnel. Alternatively, as the owner, you may determine that an additional person is needed. As your firm grows, you will need to add personnel. If the manager makes the determination, the manager must then make the request to an owner or the president (or other executive manager, depending on the size of your organization).
2. Provide justification for the position.
If a manager believes he or she needs an additional person on his or her team, he or she must
substantiate this need. Ask, “What is needed that cannot be done by someone else? Has the
company grown so much that there is too much work for the existing personnel to handle? Has
new technology or new methodologies been introduced, which require someone who is familiar
with this? Has the Company or group started to do additional work that now requires someone
to monitor or perform this work?”
Whatever the reasoning for the position, the justification for hiring for a new role must be provided. Providing the answers to the above questions are one means, but not the only means, of this justification.
3. Ask, “Do revenues cover the position?”
It is important that the position not simply increase the company’s overhead. Employees are hired to help the Company achieve a specific objective. As a small business owner, you may occasionally forget that all for-profit companies are in business to generate wealth for the owners (i.e., shareholders, members, etc.). This can only be done if the company is profitable. Therefore, there must be sufficient revenues in the departments that the employee will touch to cover the cost of the new employee. A new employee will either increase the Cost of Goods Sold (COGS) or increase the Selling, General & Administrative (SG&A) Expenses / Overhead. In both cases, a new employee will increase the Company’s break-even point. Therefore, there must be sufficient revenues generated to ensure your new hire will not decrease the company’s profitability.
Another way to view this is that you should have current employees work overtime as the company grows and/or shifts to make up the gap in work load until revenues reach the point where the hiring can be economically and financially justified/supported.
4. Ask, “If current revenues do not cover the position, will future revenues do so?”
If hiring for a sales or marketing position, your firm’s current revenue may not justify a hire. However, if the salesperson or marketer is expected to generate 3 or more times their labor burden and commission in additional revenue within the following year and to at least break even regarding their labor burden in the following 6 months, then the hire is justified. However, you must truly clarify these expectations, and the new hire must be held accountable to this and supported in achieving this goal.
If current revenues do not cover the position, then the position must remain vacant, unless the case can be made for future revenue coverage, as above. If this is a sales or marketing position, then the position must remain vacant until your manager or you as owner have a clear plan regarding how future revenue will be generated by the addition of this new employee.
If you work through the process described in 1-4 and do not have strong justification to hire at this time, do not hire for the position at this time. In other words, let the position remain vacant and take other steps to fill in the gap – if there is one – such as using overtime, using a temp agency, outsourcing, or hiring freelancers.