Hiring your first employee

Many businesses start with no employees except for the owner, often operating out of the house to minimize overhead. For the newly minted entrepreneur, especially one who came from corporate America, it is a difficult adjustment to wear all the hats with no one available for delegation.

It may be very tempting to go out and hire an employee, and there often does come a crucial decision point where the owner is overwhelmed with work, has a real need for a staff, or decides to grow the business, and determines it is time to hire the first employee.

This is a momentous time in the life of a business. Up to this point there have been minimal government forms to fill out and file, no concerns about unemployment insurance or workers compensation, and no interpersonal or management issues. But now the entrepreneur will be faced with all of these.

The sad fact is that often a sole practitioner who has had a comfortable income, starts seeing the income drop after starting to build a staff. So, here are some things to do before putting an ad in the help wanted section.

1. Write a job description for each job that you are doing. Now, review the job descriptions of each task that you least like to handle yourself, or for which you believe you are in most need of assistance.

2. Determine if some or all of these jobs can be outsourced. For example, if one of these job descriptions is for bookkeeping, you may be able to find a freelance bookkeeper whose services you can retain for a few hours a week.

3. If tasks can not be outsourced, does the amount of work justify a full time person, or could one or more part time people do the work?

4. Will the new employees actually perform revenue generating work, or free you up to generate more income? It is key that for each employee hired, there is sufficient additional revenue generated to MORE than cover the wages, taxes, and other financial benefits of the employee. If a hiring analysis fails this test, you need to tread very cautiously!

5. Create a cash flow forecast for the next year to verify that your analysis in step 4 is correct.

6. If you do decide to hire, create a detailed job description for the job you want to fill, starting with the descriptions you created in step 1. From the job description create a list of requirements for a person to fill the job. Use the description and requirements document to drive the recruiting and hiring process. Do not hire a relative, friend, or prior associate just because you like them if they don’t have the requisite abilities to fill the job you need to have performed.

In the next few posts I’ll talk more about the hiring process, and discuss the issues to be aware of in hiring full time, part time, and contract employees.

I need to add a word of caution – this post does not purport to offer legal or tax advice. When hiring the first employee, make sure to seek advice from your attorney and tax adviser.

Will Limkemann
Limkemann Business Advisors
440-871-0976
www.neobizadvisor.com