Employees can make or break a business - whether they number 200 or just one.
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Established business owners know from experience when, and how, to hire. But first-timers, who are often suddenly juggling executive, financial and operating roles, are not usually as seasoned and can run into problems. What are some hard-and-fast rules when it comes to bringing people onboard?
“You need to hire the people you need, but not too many,” said Monica Doss, who heads FastTrac, a program that gives entrepreneurs advice and networking opportunities. “It really depends on who the customer is on the other end.”
Doss said she learned firsthand that an otherwise would-be-successful start-up company can and will fail after hiring too many of the right people at the wrong time.
“I made a lot of mistakes early on putting people in boxes,” Doss said of her previous thinking that one employee should be dedicated to one specific task. “You have to expect employees to surprise you.”
Doss, whose work partners her with the Kauffman Foundation -- the largest foundation in the word dedicated to entrepreneurship -- said a company can be doing well bringing in the cash, but still fail because owners do not understand the mechanics behind expansion.
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She said entrepreneurs should remember to always weigh the pros and cons of being able to generate more business against how much that expansion will cost.
Help vs. Clutter
More workers mean more productivity – and more clutter.
Business owners must have workers file paperwork, specifically W-4 forms with the Internal Revenue Service. And someone has to keep track of how much to withhold from paychecks.
Hiring just one employee thus forces an employer to decide how he is going to maintain such records.
Help vs. Cost
What can often be most costly is the price of taking care of an employee. If entrepreneurs purchase health-care plans for themselves through their small businesses, they are required to provide that same plan for employees.
Add to that more fees if a new computer needs to be bought or a personnel management system purchased.
That is why many just-out-of-the-gate entrepreneurs under-staff and outsource. Though this ups the risk of low-quality work and minimal employee loyalty, both of which can hinder a small business that depends heavily on its workers to put in extra hours and share the boss’ passion for the company.
“Every business needs to figure out if they are looking for a skill set that is absolutely necessary,” said Professor David Brophy at the University of Michigan Business School. “If you need a physicist, you have to hire the person.”
That is not the case if an entrepreneur is looking for a bookkeeper to maintain her records. Thus, an efficient way to go about hiring is to work backwards: forecast how much money will be coming in during the next few quarters and then match this against the caliber of employee(s) needed.
If an entrepreneur has a six-month business contract that involves computer programming, it makes no sense to hire an over-qualified techie for a year. What would make sense would be to hire a multi-tasker as an independent contractor.
Hiring independent contractors allows business owners to avoid having to file any forms with the IRS. The only thing the government needs to know is how much the employee was paid; it is up to them to report their earnings and pay taxes on the money.
Another reason experts suggest hiring multi-taskers is that they can shift positions mid-stream as a company evolves. This eliminates the burden of hiring new people for each new function.
When Help Isn’t Helping
After bringing people on board, entrepreneurs must be capable of what usually is a very tough job.
“You also have to be prepared to fire someone,” said Joe Lewin, a counselor for entrepreneurs through the U.S. Small Business Administration’s SCORE program. Small business owners are usually optimistic folks and overlook the possibility that a recent hire could turn into a recent fire.
Lewin said employers should avoid having employees sign contracts which, as legal agreements, can be challenged in court if a person is fired before the contract ends. One of the main causes of small business going into bankruptcy, he said, is not what you would expect but instead is so that owners can break contracts that were signed when coffers were flush with cash.
He said you can protect yourself from this by skipping any dotted-line signings and instead just be forward and honest with any new employee. Remind him or her at the time of hire that small businesses endure more volatile business cycles than larger companies.