Business is good and you need to hire more help, now! You’re in good company. U.S. small businesses created 1.9 million jobs in 2015 (the most recently reported year) and employ more than 47 percent of the workforce.1 Here are some common questions small business owners have about the financial aspects of hiring new team members.
1. Can I afford a new employee right now?
The Society for Human Resources Management (SHRM) estimates that hiring a new employee costs an average of $4,129.2 Then there’s the ongoing salary expense – which accounts for an average of 43% of your operating expenses.3 To determine if you can financially afford it, look at your cash flow, income statement and balance sheet.
Another important question is: can you afford not to? If you are swamped and desperate for qualified help, or you anticipate rapid growth from acquiring a new client or rolling out a new product, you will need extra help to keep your customers happy and the cash coming in.
2. What’s the return on investment (ROI) for hiring a new employee?
It depends. The ROI formula below is often used for calculating metrics like sales or business strategies, but it can also help with gauging the value of a new hire. Just remember: ultimately the ROI will only be as good as your estimation of an employee’s potential contributions to your business.4 They could be better – or worse. Here’s the formula:
3. Does it make sense for me to hire a recruiter?
Nearly one in 10 employers are hired through a recruiter according to the BountyJobs 2016 Agency Recruiting Benchmark Report5. The average agency recruiting fee is 21.3 percent of the candidate’s first-year salary.1 So if you’re looking to fill a position that pays $50,000 per year, a recruiter would cost about $10,650. That can be a lot of money for a small business. Each case is different. If you don’t have a staff member already responsible for hiring people, and you don’t have the time to do it yourself, it may be worth the investment.
4. How can I keep hiring costs down and still find qualified applicants?
If you hire an employee yourself, you may avoid the cost of hiring a recruiter. And if you already have candidates in mind, it may be easier to cut out the middle man. But that means you, or one of your other employees, will need to spend time writing job descriptions. Interviewing candidates. Calling references. Completing paperwork. It’s a personal decision – but one that can be driven by your financial situation and the value you place on your time and that of your other employees.
5. I want a second opinion on whether I should hire someone. Who can help me evaluate the long-term financial impact of hiring a new employee?
You should absolutely talk to a trusted advisor. Your accountant, lawyer, financial institution, or another business owner can offer objective advice based on your particular situation. Discuss your cash flow, growth opportunities that may require new staff, and the legal responsibilities of growing your team.