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When Should I Hire More Employees?

Posted by Stephen King
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employee capacity

Since payroll is generally the biggest expense in a service business, employee capacity is a popular topic of discussion among our clients.

In the growth stages of a business, CEO's or Business owners have to make the decision of whether to hire more people to handle the work. But how do you know if there's not enough employees? Are your current staff overworked? Or how do you know when you have too many employees? Are all my staff productive? When does the return balance the cost? And when should a company begin to expand not only its income-producing employee team, but also its back office staff?

It's common for every business to encounter growing pains: From expanding buildable staff to growing a team to build a reputation. The way an owner or CEO handles the various aspects of growth determine whether or not a company will survive and thrive.

People management, and building a cohesive, productive team is first and foremost for successful operation. But that takes time, analysis and the ability to recognize pitfalls as well as opportunities.

If you're at the threshold of deciding whether you need to scale back on your current staff to help manage cash flow, or hire new employees to prepare for growth, how can you be sure you're making the right decisions? 

The True Costs of In-House Bookkeeping & Accounting [Infographic]

Develop a Plan

Start by developing (or re-assessing) your plan. You will need to determine whether hiring more people or evaluating your existing staff will help you accomplish your objectives. 

How you handle staffing needs -- from additional sales reps and service personal, designers and widget-makers, to bean counters, quality control managers and a human resources team -- always impacts the bottom line.

Here are some basic guiding principles:

  • Gather the data
  • Look at your KPIs
  • Analyze your needs
  • Review current employees 
  • Evaluate your interview strategy - both hiring and firing
  • Look for team players and compatibility
  • Consider the need for training and the time it takes to develop competency

Improper or insufficient training can become as much of a problem for new employees as well as overworked employees who are facing burnout. It just represents the other side of the coin. If new hires aren't well-trained, they may take longer to develop your core competency. If current employees are overworked, or unproductive from insufficient training, this could lead to the potential for turnover.

Either way, it's a problem that many small and medium businesses face. It's what you do about it that's important. First, be realistic about the need. Any good team can withstand occasional flurries of activity that require "above and beyond" performance. It's equally true that not every employee will operate at 100% efficiency and commitment 100% of the time. But the best teams navigate the ebb and flow with a natural rhythm.

ReDUCE YOUR TURNOVER

Employee turnover is a hidden cost that eats up profit. Some estimates place the direct cost of losing an employee at 150% of the annual salary. And it's also true that 80% of turnover is attributable to bad hires.

There can be varied reasons for turnover – including recruiting for skills instead of cultural fit, lack of effective training, overworked staff, company culture by default instead of by design – but reducing turnover is the number one way to control costs for any small to medium business.

Building a cohesive team is something every CEO should prioritize.

Here are three ways that could help reduce turnover in your business:

  1. Define your Human Capital Strategy - Success of a business starts with defining your core value values and recruiting for cultural fit, not skills. This means you understand that the success of your people means the success of your company so you must attract great people, recruit and retain the "right" people.

  2. Build an effective Talent Management Strategy - When you view employees as assets and hire people who share your core values, you understand how much value each person currently brings to your company in the form of knowledge, skills, experience, behaviors, relationships, networks, and more. That means investing in their career and not just offering them a job.

  3. Have a Growth Mindset - This doesn’t mean you need double digit growth. It is a great way of encouraging employees to challenge themselves and learn. It’s important to reward efforts, learning experiences and innovation in order to create an environment in which employees feel welcome to challenge themselves, try out new ideas and learn from failures

The best candidates want to work in a positive, supportive environment that aligns with their core values and provides them with interesting work. When you communicate your core values and company culture to candidates up front, you increase the odds of attracting candidates who are passionate about your business—and who are more likely to be high performers who stay with you for the long haul because they believe in what they’re doing.

Payroll costs typically account for about 70% of a service company's budget, and represent a substantial investment of time and energy as well. Savvy CEOs value high-performing employees, and will do their best to hang on to trained staff.

As you survey your existing staff makeup, consider not only the current contribution, but also the future potential, of every member of your team. Before you decide to look elsewhere for new employees, consider how best to utilize the people you already have. If you promote from within it gives everyone in the company a feeling like there is growth opportunities by staying in your company.

Identify existing strengths and weaknesses in every individual. Be open to possibility, and think about coaching an existing staffer to assume new duties. Realign job responsibilities if it makes sense for your organization.

By rewarding existing employees both financially and emotionally, a business owner can reap huge dividends in terms of loyalty, energy and team spirit. In addition, promoting from within is cost-effective and it strengthens the tribe.

 

EVALUATE THE ROI OF YOUR PEOPLE

Because a growth-oriented firm must balance the need for billable or revenue-generating positions with support staff and administrative personnel, the numbers count.

Tools like our People Scorecard will allow you to analyze your investment against the dollar return for the people you hire. It's eye-opening data.

You don't want to allow your organization to become "fat" in any area. The ability to chart your company's performance in three vital categories is not only valuable, but actionable.

The chart graphically shows:

  • Income Per Hour Paid
  • Labor Cost Per Hour Paid
  • ROI on Total Labor Cost Per Hour Paid

By utilizing this kind of scorecard for data-driven decision-making, CEOs and owners of growth-oriented businesses have the intelligence to ensure a profitable future.

This KPI tool is available as a downloadable template that you can use to analyze your own staffing numbers, and it's also a component of our analysis when we work with SMBs.

Pay attention to the key indicators, and make your decisions based on the best available data.

Although some companies tend to think that business growth always includes larger numbers of employees, that is not always the case. A mix of in-house staff and outsourced functions is sometimes the best formula for success.

Consider outsourcing back office staff to alleviate the burden of managing an internal accounting department, so you can focus more on your profitable employees...

Get The Guide to Outsourcing Your Bookkeeping and Accounting