Sure, there may be some tepid signs that the economy is improving. But it’s still hard to know whether the time is right to start bringing on new full-time employees. “Caution is the word of the day, because there’s so much uncertainty out there,” says Michael Alter, president of Sure Payroll, a Chicago-based payroll processing company that targets small businesses.
How to tell whether it’s wise to take the plunge? Consider these steps.
Analyze your numbers. That means looking at trends in sales and profits, probably for a three to six month period, to see whether there seems to be a sustainable uptick. And include close rates in your analysis, as well.
The exact amount of time that should show positive results varies according to your industry, however. A big ticket item that has, say, a 12-month sales cycle will require a different timeframe from something that’s sold in a matter of weeks.
Take Jeff Stinson, president of GHRO, a seven-employee Irvine, Cal.-based company with two revenue streams. For one, the firm acts as the in-house recruiter for corporate customers. Since that business is very sensitive to economic downturns, Stinson looks for as much as six months of growth before he’ll hire. But his other business, through which he provides the full gamut of hr activity, from health insurance to overseeing workers compensation, is a different matter. “That’s more of a commitment, so the company is less likely to dump me,” he says. For that side of the business, Stinson looks for evidence of 60 to 90 days of revenue growth. He’s now considering hiring one or two employees.
The key is to have accurate methods for forecasting demand. Consider Steve Schaffer, CEO of Offers.com in Austin, a site that lets consumers compare prices at 3,000 different stores and sites. He pinpoints his top 200 or so revenue-generating partners and does a forecast on a rolling 15 –month basis every month based on their results. Then, he does a re-forecast every month. “It’s about getting granular,” he says. “That way, we have really good picture of demand.” There also are two quarterly reviews for the entire company, during which each department reports on results and then discusses plans for the next quarter. Thanks to that process, Schaffer thinks he can increase head count from about 30 to 45 employees by the end of the year.
Consider an individual’s cash flow potential. “What’s required is for a new employee to be cash-flow positive,” says Alter. That means determining exactly, say, how much in revenues a salesperson has to bring in before that person can pay for himself or herself .Then, you can compare that to what other reps are selling and market trends to figure out whether it’s feasible for the individual to sell the necessary amount.
If you don’t want to go through all that, however, you should at least take into account the recruit’s potential to bring in additional sales. “The new employee should either generate revenue or free up the time of a revenue-generating player on the team,” says Devesh Dwivdi, a Toronto-based small business consultant who runs www.entrepreneurinmaking.com, a website for people considering entrepreneurship.
Determine whether you need specific skills that no one on your staff has. “Sometimes, you reach a point where you can’t grow your product or service without hiring someone with a different expertise,” says Janet Boulter, a business advisor with the Center Consulting Group. Case in point: Boulter points to a 50-employee property management company that was forced to lay off all of its eight building engineers, plus two property managers in 2008. Recently, the firm acquired two high-rise buildings—and realized the shrunken staff didn’t have sufficient expertise to handle the extra properties. So, the company ended up hiring a property manager and two engineers to manage the new contract.
Look for signs of burnout. If mistakes are being made often or important details are slipping through the cracks, it may be a sign that your employees are being over-worked, and you need more people.