How Do You Know If You Can Afford That New Hire?

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In This Episode

We recently had a client who had an opportunity present itself in the form of a potential employee who was a “rock star” by all accounts.  The issue was our client wasn’t actively looking to hire someone yet and he was cash poor at this point in the year due to a recent investment in some inventory.  So he was asking us how he determine if he could afford to higher this person or not.

During our discussion we took our client through a couple of things.  First, we talked about the Functional Organization Chart he was working on because we wanted to use that to frame a potential job description for this “rock star”.  We knew if we couldn’t get the role laid out for this person then there was no need to move forward.  In this case we were able to figure out the role pretty quickly.

Next we talked about looking beyond the annual salary for this person and focusing on what they would cost the business for 90 days.  That way we’re looking at a decision for $15,000 or $20,000 vs. $60,000 or $80,000.  We look at it that way because if this new hire isn’t working out within 90 days then you will part ways with them.

We also talked about plugging this new person into the Profit Plan for the next 12 months to see what impact they would have on the profitability of the overall business.  We know most owners don’t have a “budget”, or as we refer to it as a Profit Plan, so it’s imperative to get one set up where you’re forecasting your sales and expenses by month for the next 12 months.  It gives you great visibility on any decision you make for your business and the resulting impact you expect.

 

People, Companies and Resources We Mentioned in the Show

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