Hiring new employees versus profitability
Here I’m talking about a boostraped company, starting small with the owners work, looking to expand. And the question is can you keep the productivity up by hiring new people?
This is the part where you, the reader should identify yourself with the article: you started small, probably working from home, got some nice customers, income is going steady, but you feel you can’t expand and grow profits unless you get some help (this is one of these moments when you are working 12 hours a day, and over weekends to get stuff done but it’s still not enough). If you are in this situation, the only valid thought is that you need to hire somebody so you could have more customers and cash more in. And now the question again: if you hire a new person, your profit will go up or down? I mean if you have a profit of 3000 euro per working man (yourself) now, does this mean that if you are going to hire 2 more you will get 9000 euro profit at the end of the month?
Well…no. In fact, at least in the beginning, your profit per man will drop. You can expect that for at least 6 months (until the new employee will really get to doing stuff the right way) you will get 3000 euro profit per 2 working persons. And that’s half. And after the 6 months, you will still not get to the 3000 euro/person level, because simply put, your employee will not work 12 hours a day and over weekends. And moreover, if you hire more than 5 people, then you will need a boss to manage them – and bosses are particularly known as not doing anything by themselves 🙂 so, once again your profits will go down !
Of course, if you have a bigger company, you could hire people who can improve your profits because you can afford. So yes, hiring more people could also mean increasing profitability, but it just take a number of conditions to do it; I’m thinking at the following:
- when hiring, have a very good plan on what the new employee should be doing. I know you are busy, and not really keen to make schedules, procedures and plans, but simply put, if you hire and then got nothing to delegate to the new employee, then you are going to spend money for nothing.
- hire the best man you can afford. When you are small, is quite difficult to hunt for new employees, and any change is very expensive. Also if the employee doesn’t perform to the max, your profits will drop even more and you can’t afford it
- make sure that you have resources to pay the new employee for at least 6 months, even if the business is going to slow down. When you don’t have employees, it’s easier to get through slow times, because it will only affect you. But if you hired, you will have to provide money to your employees no matter what.
So I would say that your profits will drop in the beginning when you hire. But then again, you need to hire!