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How do You Know It’s Time to Hire?

How do You Know It’s Time to Hire?

Running your small business by yourself can be a lot of fun.  But, if you grow, sooner or later you will have to hire some help.  Here’s a great post to help you decide if the time is right.

 

BY LISA FURGISON

Is It Time to Hire an Employee?

If you own your own business and find that you simply don’t have enough time on your hands to be able to do all the things you need to do, you may be asking yourself should you hire an employee? 

If you’ve already got employees, your question will be similar, when is the right time to hire another employee? Regardless of the structure of your business, there will be times when you need to make this decision and it’s not always as simple as acknowledging there’s too much on your plate…

To help you figure things out, we asked entrepreneur Kurt Johnson, a Los Angeles resident who has created several businesses including his most recent fitness venture, Swollforlife.com, to help us figure out what to consider before hiring.

Start with a list of advantages and disadvantages

Figuring out whether the time is right, may be as simple as making your own pros and cons list. This is a good first step before you look into cash flow, last year’s financials and your workload. Consider this testing the waters. Here’s an example list:

Advantages of hiring a new employee:

  • You’ll have more help to handle the tasks that are overwhelming you.
  • A new employee can breathe new life into your business and generate new ideas.
  • Someone will be there to share those exciting moments. As Johnson says, you’ll have “someone to high five” when things go right.

Disadvantages of hiring a new employee:

  • An employee costs you money.
  • There are more tax forms to juggle.
  • A new employee requires a big time investment upfront.
  • You’ll carry added stress of another person being dependent on your business.
  • You’ll need to manage and monitor the new employee.

Once you’ve created your list, and perhaps once the advantages outweigh the disadvantages, you can move on to the next step – genuinely trying to work out whether or not you should hire a new employee.

Should you hire a new employee?

Administrator of the SBA, Maria Contreras-Sweet, believes there are 4 things to consider before you take the plunge:

  1. What is your vision for your business? Do you really need staff or additional staff or could you do just as well with virtual assistants or temporary workers? At this stage you’ve got to be honest with yourself – do you want to keep the business small or do you want to become a larger business?
  2. Where do you need help? Review your workload and your project pipeline. Is there anything you could offload on a new employee and if so, what ‘type’ of employee does this work suggest you need to look for? Perhaps a sales rep? Maybe a cashier? Or what about an accountant? Even if your goal is to hire in order to free up your own time, make sure you have a good handle on where that time should be spent so that you can look for someone with the appropriate skill set.
  3. Can you manage people? This is an important consideration. What have your past experiences taught you? If you believe you’ve got the ability to manage, what about the ability to make a good hiring decision? Do you need help?
  4. Can you afford it? Right, so this is probably one of the trickier parts. Take the time to build a picture of the costs and overheads your business will incur as a result of a new employee. Some things to consider: wages, unemployment tax, workers compensation insurance, medicare and social security taxes, recruitment and training costs, benefits, payroll costs, new equipment, software licenses, etc. Once you’ve got a realistic idea of the potential cost of a new employee, try to align this cost with the benefits you’ll get from that new employee. How much new work will you be able to take on? Take a look at your income and expenses from the previous year to assess whether you have the capacity to afford someone. If it looks possible and profitable, consider your pipeline and cash flow. Can you live with not being profitable in the short term or will this cripple your business?

If you’re still unsure about whether or not you can justify hiring an additional employee, it may be worth sitting down to to see if you can pinpoint those signs that say you really should bite the bullet.

Four signs you’re ready to hire

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1. When you turn down work

If you have to turn down work because you can’t fit another project into your schedule, it’s a good indicator that your business is ready for help.

“If you’re growth is being inhibited by the hours in a day that you can work, then it’s time to start thinking about another employee so you can retain all available revenue,” Johnson says.

No business owner doesn’t want to earn more money, but some don’t want the added work or complications that come with hiring someone new. Again, you’ll need to be honest with yourself.

2. If you identify a new revenue stream but need additional skills

Diversifying your business is a smart move. Along the way, you’ll probably find a new source of revenue that you could tap, but might lack some of the skills necessary to really dive in.

“Sometimes you will come up with great business ideas that you are just not personally equipped to execute on,” Johnson says. “This is a great problem to have and the right employee can truly make the difference in taking your business to the next level.”

3. If complaints are rolling in

If you’re spreading yourself too thin, it shows.

If customers start complaining about your work or about your timeliness, it’s a sign that you’re spread too thin. If you’re not able to commit yourself to each and every project, you’ll want to hire an additional employee. Bad word of mouth can damage your reputation and revenue, so you should hire someone soon if this is happening at your business. Even if you are just bringing someone in to answer your phones, field emails, or tackle your accounting practices, you will get those hours back to commit to clients.

4. When you have a steady stream of revenue

It takes a while for businesses to gain a steady stream of income, and you don’t want to take on an employee until that happens. An employee can help your business grow, but before making any staff additions, you’ll want to make sure you have the revenue available to pay him or her.

Weigh your options

If you decide that your business is ready to hire an employee, you do have several options. You can hire someone full or part time as a W2 employee, or you can hire someone on an as needed basis as a 1099 employee. If you hire someone as a W2 employee, you are responsible for paying taxes. If you hire via a 1099, the employee is responsible for his or her own taxes.

Johnson suggests starting with a part-time 1099 employee to see how much help you need and how the additional employee works within your business. Once you’re ready to bring on a full time employee, Johnson suggests consulting an attorney to make sure your business complies with all tax and healthcare regulations.

If you began your business on your own, when did you decide to hire your first employee, and what made you decide? Share your stories and advice in thecomments below.

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Lisa Furgison

Lisa Furgison is a journalist with a decade of experience in all facets of media. Follow Lisa on Google+

 

Hiring Your 1st Employee? Here’s 7 Things to Consider

Hiring Your 1st Employee? Here’s 7 Things to Consider

As small business owners, it’s hard to know just when to hire that first employee.  Here’s an article with 7 key items you should consider before making a decision. 

7 Keys to Hiring Your Start-up’s First Employee

By Nathaniel Koloc

Hiring your first employee is a huge step for your start-up. In addition to the sudden sense of responsibility (you’re now in charge of someone else’s livelihood!), it’s a strong signal that your company has real merit: Someone has chosen to turn down other opportunities to help make your idea happen. And in many cases, he or she is embracing a significant amount of risk to do so.

But the most fundamental way in which it changes your business is bandwidth. A new person dedicating all of his or her time and focus to the company means that suddenly you get to move faster. A lot faster.

At my company, ReWork, it took over a year to get to the point where we were ready to bring someone else onto the team. We didn’t read any here’s-how-to-hire-someone books, but instead relied upon our observations of other start-up experiences, and advice from our Unreasonable mentors. And after three months, 30 applicants, and a steep learning curve, we were able to find exactly what we were looking for. His name is Shane Rasnak, and he is awesome.

Based on our experience (and that of other founders we’ve talked with), here’s the advice we’d give anyone else in this boat.

1. The Sooner, the Better (If You Can Afford It)

Hire someone as soon as you know that you need them and can afford them, even if it’s tight at first. The extra oomph that another person gives in brainpower, creativity, and sheer legwork is totally worth it. Things that would otherwise take you weeks will be doable in days. Entire work streams will disappear from your to-do list.

In many cases, founders who are reluctant to hire even when it’s clear they’re overworked end up kicking themselves later when they realize how much they weren’t getting done while they delayed. We sacrificed our own pay to make room for Shane, and it was more than worth it.

2. Hire for Potential, Not (Just) Track Record

One key trait of a skilled hiring manager is the ability to see potential, not just evidence of past success. Look for someone who has a strong interest or passion for causes or missions that are similar to yours, and, separately, evidence that the person is really good at what he or she has done before (even if that’s a variety of different things).

Unlocking potential has to do with marrying someone’s skills and passions, so even if a person hasn’t yet found a way to truly unleash herself, if your position can do it for her, you’ll likely see results. We turned down applicants with Master’s degrees and 10 years of experience because we sensed that Shane had immense potential to excel at our company. Also, it was clear that he was interested in punching above his weight.

3. Have Applicants Demonstrate Skill or Aptitude

Many people know exactly how to answer interview questions in a way that instills confidence in a hiring manager. In short, it’s (relatively) easy to bullshit. So, research shows that the best way to vet someone is to have him or her complete a task for you—for example, if you’re hiring a salesperson, ask them to sell you something. We had our applicants create an outreach strategy to reach our target audiences, giving them relatively little direction to see how they would tackle the assignment without guidance. The results were telling, and those that clearly didn’t put the time or energy into making it quality were removed from the running.

4. Have Everyone on the Team Interview the Stars

Finding a cultural fit for your team is tricky. Just because Person A and Person B get along, and Person B and Person C get along, doesn’t mean that Person A and C will get along (let alone work well together). As three co-founders with quite differing personalities and work styles, it was important that each of us would work well with our first hire. So we interviewed him four times, twice after we knew he was our top choice. That may seem excessive, but we needed confidence that he’d fit in well. When each of us felt that we’d have a productive working dynamic with him, we knew we had the right guy.

5. Invite Them, Truly, to be Part of the Team

Once you hire someone, you have a choice: You can consider him an employee, in the sense that you issue him directives, evaluate his work, and compensate him for his time. Or, you can consider him a member of the team that has chosen to dedicate his time to making your vision a reality, including learning alongside you and experiencing the ups and downs of your venture. And the latter is one of the main reasons why people join start-ups in the first place. We made it a point from day one to show Shane that he was part of our team, and that intention has already paid dividends.

6. Design an Onboarding Process

While we did some things right during the hiring process, there are others we would have done differently. For example, the extent of our “official” onboarding for Shane was a two-hour conversation on his first day on the job. Other than that, we tried our best to show our culture and expectations over the course of many smaller conversations. And though the result has been fine, we’d definitely do it differently next time—we would put together a series of sessions ranging from our culture and intent to company history and strategy. At the very least, having all these things spelled out means that everyone who joins the company will have the same experience.

7. Have Your Legal Ducks in a Row

Here’s a bold admission: We didn’t have an employment contract for Shane for the first six months that he was working for us. As a young business, we just hadn’t prioritized our legal documents. Again, though everything has turned out fine, I do not recommend this approach. Not having a contract in place (or terms discussed with advisors and lawyers) meant that both Shane and our team were legally unprotected. Fact is, not all hires work out. And when you’re laser-focused on revenue and market development, the last thing you need is a legal headache. Knowing that everyone is officially taken care of means that you can focus on what matters most.

Your first hire is a huge step in the life of your company. Take the time to do things the right way, and you’ll make sure that your first employee will be there for the long haul—and be one of the greatest things to happen to your company in its early days.

Check out more from Start-Up Week at The Daily Muse!

Best Hire: Employee or Independent Contractor?

Best Hire: Employee or Independent Contractor?

As small business owners, sooner or later we are faced with hiring our first employee.  So which kind is best: full time employee or independent contractor?  Here’s a great post with all the pros and cons. 

The Pros and Cons of Hiring: Employee vs. Independent Contractor

BY LAURA SHERMAN | SMALL BUSINESS


[This article is a piece of part 11 of our Smart and Simple Guide to Starting a Business – scroll to the end to see the other parts]

As a small business owner you will need to determine whether to hire full time employees or use independent contractors. Don’t make the mistake of thinking they are basically the same thing. They aren’t.

Although you pay both kinds of workers to do tasks for you, they are not viewed the same by the IRS. And if the IRS suspects that you are not classifying your workers correctly, they might audit you.

The IRS defines independent contractors in this way: “The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.”

So, if you own a restaurant and hire two waiters, they would be employees. However, if you contracted a local handyman to come in as needed to fix anything minor that breaks in your restaurant, they would be an independent contractor even if you pay them hourly. The waiters show up to your place of business and work under you, while the handyman has his own business and simply shows up and fixes things his or her way.

There are pros and cons to hiring full time employees and independent contractors. Most small business owners wish to avoid the added overhead of having a slew of employees, but some don’t have a choice. You’ll need to evaluate your situation to determine what is best for you.

Advantages to hiring full time employees

When you hire full time employees, they will work for you thirty or more hours a week (fewer hours makes them part-time) and will usually have a long-term commitment to you and your business. The advantages to this type of relationship for you, the employer, are:

  • These employees will feel pride in their position in your company. Most people want the security of a job, but they also want to feel the satisfaction of working for a company that they can call home. They want to feel that they are an important part of the team. If you give them that, they may go the extra mile.
  • The hourly wage for a full time employee is often much less, because they have job security. If you were to hire out for the same work with a freelancer, you can often expect to pay quite a bit more.
  • You don’t need to scramble to find help when your workload increases. If you only rely on independent contractors and need urgent help, your favorite freelancer might be booked. Or it might cost you a lot more to hire one last minute.
  • You don’t have to wear all the hats of your business yourself. Instead you can delegate tasks permanently to others. This frees up your time to do the tasks best suited for you.
  • You don’t need to continually train staff on how you like things done. Your employees know you and can do the work without the need for continual direction.
  • If you want to take a vacation, you can be assured that someone is holding down the fort for you in your absence.

Disadvantages to hiring full time employees

As you consider whether you want to hire full time employees, you’ll need to consider the downside as well. There are certain requirements that come with having employees:

  • Although it isn’t mandatory, most full time employees expect benefits, like health care and vacation time. As you interview potential candidates, they will most likely be interviewing with other companies as well, who offer such benefits.
  • You’ll need to pay their salaries like clockwork, even if your business has a lull. In order to cover their paychecks, you’ll need to have a reserve of money in your bank account.
  • You’ll have specific payroll paperwork that is legally required. Along with this, you’ll need to withhold your employees’ taxes, social security, and Medicare.
  • You are responsible for your employees’ training and professional licensing requirements. These vary from state to state.

Advantages of hiring independent contractors

Small business owners usually prefer to hire freelance workers for jobs when they need help. There are distinct advantages to sticking only to independent contractors:

  • Although you usually pay more per job or per hour, you will most likely save money overall since you aren’t required to pay them any benefits and do not need to commit to a salary.
  • You have greater flexibility. When you work with an independent contractor and it isn’t a good match, you simply don’t hire them again. When you have an employee that doesn’t work out, you may need to fire them, which isn’t always easy.
  • You can hire the right person for the task needed, contracting someone with a specialized service. They often have many years of experience, so you don’t need to train them.
  • They are responsible for their own permits and professional licenses.

Disadvantages of hiring independent contractors

While hiring independent contractors has many advantages, there are some drawbacks as well:

  • You lose some control over how tasks are preformed, because you can’t closely monitor their work. You can guide them, but usually they aren’t on site and will run their business their way.
  • They are hired short term, so you might not get the same worker for the next project. They usually operate on a first term, first serve basis.
  • They have no sense of company loyalty, but are a hired gun for one specific job. They are not part of your staff.
  • They will not promote your brand, but their own. Their work is done under their business name, with their logos, etc.
  • All copyrights will be owned by the independent contractor, unless you draft an agreement stating otherwise.

There are times when the line between employee and independent contractor can become blurry. For instance, how do you classify a virtual assistant? In order to answer that question, you must evaluate the situation.

Does the virtual assistant have her own company name, work for you on a project-by-project basis, and operate independently with limited supervision? Most likely, they would be an independent contractor. However, if she works for you forty hours a week and you are her only client, she might be an employee.

Understanding the difference between an independent contractor and a full time employee will save you a lot of headaches in the future. Set up your business with the type of workers that you need for long-term success.

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