How Do You Know When It's Time to Hire Your First Employee?

It's frequently estimated that the cost of recruiting, hiring and training a new employee can cost a business $4,000 (or more), which is often anywhere from 25 percent to 200 percent of annual compensation for that new worker.

As industrious and multi-talented as you may be, if your goal is to grow your business, and have a life outside of it, the reality is that you can't do it all. At some point you need to assess when the benefits of hiring another person will outweigh the cost of doing everything yourself.

There's plenty of legal, financial and individual preparation that goes into adding another mind, body and personality to the operation of your business, but let's start with assessment. How do you know when it's time to hire your first employee?
 

Determining When To Hire Your First Employee

Jennifer Thomas, Jet Clothing's production facility

If you run a boutique, bakery or restaurant, it's probably important for you to be open, selling, producing or serving your goods, six to seven days a week. Thus, many small business owners must hire their first employee right out of the gate.

"You can't do everything yourself" and keep your sanity, insists Jennifer Thomas of Jet Clothing, especially when you have a storefront that needs to be open seven days a week.

Erica Lurie of Garnish Apparel echoes this sentiment. "I knew it was time to hire my first employee when I first opened my shop and decided that I wanted to be open seven days a week, but didn't want to work seven days a week," she says. "Since an article of clothing is a comparable price to a day's wages, on any day of the week someone might come in and make a large purchase that covers your payroll for several days. So, I figured that until I had enough data to analyze accurately if there was a day of the week that was consistently not profitable, I ought to be open seven days. As it turned out, it makes sense financially to be open every day."

Bill Horton, a small business coach at BizFix and educator for Mercy Corps NW, says determining when to hire your first employee "is a challenging topic for small business owners and most of the answers come from asking a few key questions." He recommends asking yourself the following:

• Look at an average day at your business: What do you spend your time on? Make a list of what you do, and how much time it takes.
• Are you spending your time developing your business and finding new clients or doing all the routine tasks that could be done by someone else?
• Are you spending your time on tasks that generate revenue?
• Are you still wearing all the hats? Could you delegate some tasks, like hiring a bookkeeper?

How To Value Your Time

LeAnn Dolan, Ecru Modern Stationer

Small business owners consistently say that it's extremely difficult to determine the value of their own time, but Horton says it's necessary to assign a value; "put a number to an hour of your time." DIY is definitely not free, so where is your time most valuably or profitably spent?

Simply in need of a weekly break from her business, hiring that first employee allowed LeAnn Dolan of Ecru Modern Stationer to recognize the value of her time. "As time has gone on I have found that my time is better spent on the big picture tasks to help keep the store growing and being successful and I try to delegate more of the day-to-day tasks to employees," she says.

Spend Your Time Where It's Most Valuable

Which tasks you can take off your plate? Focus on growth and revenue generation.

Decide which routines tasks you can take off your own plate so your focus can remain on growth and revenue generation. 

"When you start your business you have to be so cost conscious that you end up working all the time," Lurie says. "But for certain business models there comes a time when you realize that it can only be profitable when there is more than one person to do the work. So I try to do the things that I am the best at or only I can do, and ask my employees or subcontractors to do the rest."

Thomas agrees saying that if she knows she can make more money doing a certain task, she will hire an employee to take over the other work, like working in the retail shop or sewing. This ability to recognize where to most effectively spend her time has enabled Jet to employ nine, herself and her business partner included.

Hiring For Specific Professional Skills

Less skilled hires will help you manage tasks that you can't afford to do anymore.

Are you working 80-hour weeks while ambitiously trying to learn new skills so you can do as much as possible yourself? Sounds overwhelming to say the least. And with that kind of attitude it's inevitable that things will unintentionally slip through the cracks, you'll make mistakes in your frenzy, or you'll run yourself into the ground.

Since you're not an expert at everything, it's a simple reality that someone else can perform some tasks better than you. 

Horton says there are two types of hires: less skilled and more skilled. The less skilled will help you "manage tasks that you can’t afford to do anymore," he says, while more skilled hires will allow "you to concentrate on new areas of your business."

"There are certain types of work that I do not have the skills to do effectively, accurately or efficiently," Lurie recognizes. "So I have hired sub-contractors for that work. I have learned to pay more for someone who is experienced and therefore makes less mistakes, which ends up saving us time and money in the long run. For me it is worth the peace of mind to know that the work is being done right."

Focus on your talents and expertise and allow other professionals into your business to perform specific, technical tasks. Knowing the limits of your own skill set should make these areas obvious. “I definitely find that it is much more efficient time and moneywise to hire someone to take care of tasks like accounting, IT and website design,” Dolan says. 

But there’s still plenty more assessment to be done before you can hire your first employee, specifically in the area of assigning a value your own time, which, as we mentioned above, is notoriously difficult for small business owners. This is exactly the issue we will explore next time so you can look at the costs and benefits before you hire your first employee (Read part 2).