Hiring Smart: How to Financially Prepare for Your First Employee
Hiring your first employee is a significant milestone for any business. It can boost your revenue, efficiency, and growth potential, but it also brings added financial responsibilities. Before making the leap, it’s essential to plan carefully and ensure you’re prepared to cover the costs. In a recent coaching session, we worked through the financial implications of bringing on a new team member, and here's a general guide to help you do the same.
Understanding the Costs
When hiring an employee, you’ll need to consider their salary and how it fits into your overall budget. For example, let’s say you’re planning to hire someone at $25/hour for 30 hours a week. That comes out to $750 per week, or $3,000 per month. While this might seem manageable, you need to account for this added expense in your overall financial plan. Beyond salary, you’ll also want to consider any additional expenses like benefits, training, and onboarding time.
How Many New Clients Do You Need?
To cover the additional costs, in a service-based business for example, you’ll need to assess how many new clients you need to bring in. Let’s say your monthly income needs to increase by $2,500 to comfortably support your new hire. If your average client generates $500 in revenue, you’ll need five new clients per month to break even.
It’s important to remember that not every lead will convert into a paying client. With a 50% conversion rate, for example, you would need 10 new leads to bring in five clients. Part of preparing to hire is ensuring that your marketing and lead-generation strategies are solid, and that you can consistently bring in enough leads to support the growth of your team.
Delegating Tasks That Generate Revenue
When hiring, one of the most effective ways to make the investment worthwhile is to delegate tasks that free you up to focus on revenue-generating activities. In my coaching work with my clients, we’ve explored the benefits of having a new employee handle administrative tasks like billing, scheduling, and customer service, so that the business owner can dedicate more time to higher-level work that directly impacts the bottom line.
By outsourcing non-revenue-generating tasks, you can focus on what moves the needle in your business—whether that’s working with more clients, developing new services, or refining your business strategy.
Setting a Financial Contingency Plan
One common concern when hiring is the financial risk if things don’t go as planned right away. It’s important to have a contingency plan in place, such as temporarily taking on additional clients yourself until the new hire’s role starts generating the necessary revenue. You can also set clear expectations and timelines with your new employee, ensuring that you’re both aligned on their contribution to business growth within the first few months.
The Bottom Line
Hiring your first employee is a big step, but with the right preparation, it can lead to significant business growth. By calculating how many new clients you’ll need, prioritizing revenue-generating tasks, and having a financial backup plan, you can ensure your first hire is a successful investment in your future.
