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Ready To Be The Boss?

Monday, May 07, 2012
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Five Questions to Ask Before You Hire Help

By Kim O’Connor

Many small-business owners assume they’ll just know when it’s time to expand operations. The decision seems intuitive:

If business is booming, and you feel overwhelmed, it’s time to hire help.

But, like most things in life, hiring decisions are rarely straightforward. Bringing an employee onboard—particularly your first employee—is a big decision that involves many complex factors.

Here are five questions to ask that will help you determine if it’s the right step for your small business.

1. How much will it cost?

Chances are, you know the salary (or hourly rate) you’re willing to pay.

But the true cost of an employee goes beyond his or her wages. You need to make sure you've thought of all associated expenses.

First, consider all the hidden costs. Depending on your state and your business, these costs might include:

Don’t forget to consider training expenses and equipment such as uniforms, vehicles, office furniture, electronics or other supplies.

Once you complete these calculations, you should have a good idea of how your employee’s price tag will impact your cash flow.


2. Will my business become more profitable?

“The golden rule for hiring any employee is you need to add additional profit to the bottom line,” says Gene Fairbrother, the lead consultant for the NASE’s Business 101 program. “If an employee isn’t profitable, he or she is probably not worth hiring.”

There are two different ways your new hire can boost profits.

The first is when the employee’s labor directly produces new income by serving more clients or creating more products. The second is when the employee’s labor gives you more time to focus on income-generating aspects of your business.

Either way, the employee creates the opportunity for growth.

The only reason to hire someone who won’t enhance your bottom line is if it improves your quality of life.

For example, a business owner who wants to spend fewer hours at the office may decide to hire an assistant. That would free up time for hobbies, volunteer work, family time and other lifestyle activities.


3. What are my exact needs?

As a small-business owner, you probably wear many hats. You’re accustomed to filling different roles on the fly. You do whatever it takes to get the job done.

Before you hire an employee, it’s important to carve out a specific role for that person. With the role defined, you can conduct a targeted search for someone who meets your exact needs.

Write a formal job description that includes a breakdown of day-to-day tasks. Be forthright and realistic about your expectations so you know what type of person and what types of skills you’re looking for.

Another useful exercise is to list your professional weaknesses. (Don’t worry. You don’t have to show anyone.) A new employee can help you fill in these gaps.

You want someone who will complement, not duplicate, your strengths.


4. Should I work with an independent contractor instead?

Consider your workload when answering this question. Is it relatively stable or frequently in flux?

If you habitually feel overworked, a long-term solution makes sense. You should feel comfortable committing to a permanent employee because your needs are unlikely to change.

If, however, your business is volatile—for example, if you have a seasonal business or if you’re in crisis because of an unusually large project—hiring an independent contractor is probably a good option.

Independent contractors (also known as freelancers) are paid by the hour or by the project on an as-needed basis, so they offer the benefit of flexibility.

“With a contractor, it’s easier to take a risk,” Fairbrother explains. “You don’t have to really crunch the numbers like you do if you’re hiring an employee.

“You may pay a few dollars an hour more for the service,” he adds, “but you’re not locked into trying to give an employee so many hours a week. If you only need two hours, you pay for two hours. If you need 10 hours, you pay for 10 hours.”

One caveat: Keep in mind that flexibility works both ways. Freelancers often juggle many clients, which means their availability isn’t necessarily a given.

Also, budgeting for an independent contractor can be tricky since it’s not a fixed expense like an employee’s wages.


5. Am I ready for the responsibility?

Becoming a boss comes with certain legal obligations.

For example, you’ll need to know how to protect an employee’s health and privacy rights, how to develop an employee handbook and much more.

It’s your responsibility to research the federal and state regulations (such as tax laws and insurance requirements) that apply to your business. Compliance is important, so this isn't an area in which you can cut corners.

Another part of being a boss is investing time in your new employee. From interviewing, to training, to providing ongoing support and feedback, you can expect to clock some serious hours in your role as a supervisor.

If you’re on the fence about making a commitment, Fairbrother recommends using a temporary service, which is like having your own human resources department. A temp service will handle time-consuming processes, such as screening employees, as well as unpleasant ones, like letting someone go if things aren't working out.

Finally, keep in mind that instead of expanding your business, you can always go in the opposite direction and scale back. Options include reducing your client roster, limiting production or cutting certain services.

Leading a team isn't for everyone, so there’s no need to force it. You’re under no obligation to expand if it doesn’t feel right.

Remember, you’re the boss.


Kim O'Connor, a freelance writer in Chicago, has an imaginary assistant.


Learn More

For more in-depth information about hiring employees, check out these online NASE articles. They’re free exclusively for NASE Members.

 

  

The NASE Can Help

If you’re considering hiring an employee, make sure you understand all of your responsibilities as an employer. The NASE small-business experts can help.

Our experienced professionals answer your specific questions online with personal, confidential replies. And it’s included in the cost of your NASE Membership.

Get answers to hiring questions such as:

 

  • Should I hire an independent contractor or an employee?
  • Do I have to provide maternity leave for an employee?
  • Is my business required to pay for unemployment insurance?
  • How do I calculate payroll taxes?
  • And more!

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