Adding a New Employee Worth the Expense?

new employee hire
3 questions to ask prior to hiring a new employee

 

When a small business considers staffing up  due diligence is all important when finalizing the decision to hire a new employee.

Review and access benefits and expenses incurred with a new employee:

 

  • Before a hiring decision is made, business owners need to understand how an employee will impact the company’s sales, operational, and financial flow.
  • Be sure to consider factors such as ramp-up time, expected income generation, and increased overhead.
  • In the end, the true measure of growth is an increase in profitability and, ultimately, cash flow – does your new hire make the grade?
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One common metric that business owners use to gauge the growth of their company is the number of employees.  If staff numbers are going up, that means the business is growing, right?  Well, it certainly means that business expenses are growing.  But many business owners forget to closely consider a new employee’s potential impact on a business’s flow across sales, operations, and finance before committing.

3 Key Questions to Ask Before Hiring:

Before a new employee is hired, there are a handful of key questions that must be answered to ensure a sound decision for the business as a whole.

  1. First and foremost: what will be the added benefit to the company?
  2. Will this employee have a positive impact on sales flow, operational flow, and/or financial flow?  How much must the business adjust its monthly burn rate to accommodate this employee’s payroll, taxes, and benefits?
  3. How long will it take for this employee to be able to make an impact, and do we have enough cash on hand to fund this ramp-up time?
  4.  

If you close a big deal or land a contract for a major project, you may find yourself needing to add additional manpower quickly.  Before you hire several employees, though, it’s critical to be cognizant of the amount of time expected before the new project starts generating income.  Otherwise, you could find yourself in a situation where the outlay for the new employees is simply more than your business can afford.

 Weigh the Decision

In the end, the true measure of growth is not an increase in the number of employees, but an increase in profitability and, ultimately, cash flow.  An employee is most valuable to a company if his or her impact ultimately helps to increase the cash flow of the company.  So before you sign that offer letter, make sure you understand how this new employee will help your business thrive, and if s/he is really worth it.

More on employees:

Millennial vs. Boomer—Tips On Hiring the Best?
Boomer vs. Millennial—Tips On Hiring the Best?
Small Business Absent With Leave?
Confidence is Key to Getting Hired?
Hiring Better Fitting Employees?
Five Tips for Creating Motivated Employees?

About the author

Alex Hart

Alexander J. Hart of Cuban American decent is principal and founder of Hart Vida Raffo. With over 25 years of experience, Alex specializes in the areas of tax strategy and planning, business process improvement, and capital consulting. Whether advising on capital and financing strategy or consulting for privately-held professional services firms, Alex has the expertise and practical know-how to help any company optimize their business processes and make tactical financial decisions. He began his career at IBM in sales operations and accounting. He was a Controller for the N.Y. Post, has been a CFO for a medical device company, and has written a tax column called “Ask the Tax Guys” for Micro-Cap Review. Alex is a professional member of A.L.T.A. (Affiliated Lawyers of the Americas), a member of the National Association of Tax Preparers, and is a contributing author and mentor at Latin Business Today. Alex graduated from St. John’s University with a B.A. in Spanish and his M.B.A. in Finance. He obtained his accounting degree from Pace University.

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