Hiring new employees is part of what you may have to deal with as your business expands or as you transition from a sole proprietorship. And no matter the type or size of business you are running, there are challenges you can’t help to avoid during this process. Common amongst them is that the process tends to be expensive and time-consuming.
You could take a proactive approach. This is where you bring in a new employee(s) so as to deal effectively with the needs and demands triggered by business growth or rising demand. Or you could take a reactive approach where you only bring in the new staff when you can no longer cope with the growing demand and the existing workforce is stretched to the limit.
Either could be a sound hiring decision, especially if you spare some time to look at the numbers to see how the new hire could deliver a positive ROI. I’ll explain more about this shortly.
Meanwhile, whichever approach you take, remember finding, recruiting, and training new staff can cost thousands of dollars. And if you have cash flow challenges, that makes the process even more complicated. But that should not demoralize you. There are lots of finance options designed to help you navigate this entire process successfully.
But before you opt for one, it would be great if you put into consideration all aspects of this decision. I’ll be letting you in on what matters during this entire process.
What Kind Of Hire Do You Need (And Why?)
Keep this in mind: A bad hire is an expensive mistake that can ruin you. 74% of companies who admit to this mistake say they lost $14,900 on average for every bad hire. Actually, there are lots of disturbing stats about the cost of a bad hire.
That is why before activating any hiring process, you should, first of all, establish what kind of employee your business needs. There are many options available: full and part-time, freelancers, contract workers, etc. You might as well outsource the specific role a new hire would perform if that sounds like a financially sound decision.
Next, have a clear picture of how the new hire would benefit your business. Will they help raise your sales? Is to free you up so as you have more time to focus on growing your business? Another important aspect to consider is if the demand or growth that necessitates the need for a new employee is constant or seasonal.
At the end of this particular process, make sure you have a comprehensive plan. It should include the type of employee you plan to hire, the skills and competencies you’d want them to have, potential benefits of hiring them, and the agreeable wage rate.
The Cost Of Hiring
Borrowing a loan to fund a new hire based on the assumption that they will bring enough growth or raise sales numbers to the point that the whole process will be self-sustaining counts as a risk strategy. The outcome could be great, definitely. But bear in mind that you are not immune from the worst, which could be you repaying the loan and extra salary while your revenue underperforms.
The good news is you could minimize this risk, first by establishing how much you will need to borrow. This should be based on how much the new hire will cost your business. Be sure to check out the average market rate for that particular role. Then factor in other aspects that are part of the compensation package, like insurance and fringe benefits.
In most cases, it takes a bit of time before the new employee becomes fully productive. That means your payroll expenses may run into thousands of dollars before that desired growth or those coveted sales numbers start trickling in. So, run your numbers well such that the amount you borrow is enough to give your new hire time before they become self-sustaining.
Of course, the situation could be different for your business, but make sure you’ve factored in this principle.
Earlier on I mentioned the hiring and training fees. In the case of hiring, you could cut the cost down by choosing to advertise on social media, LinkedIn, or other professional networks. At least 79% of job applicants utilize social media in their search for jobs. What’s more, a whopping 70% of hiring managers admit that hiring via social media turned out to be a success.
Another aspect worth mentioning is the return on investment (ROI). It would be great if the ROI is above the loan’s interest rate. I understand that arriving at an exact figure can be a challenge, especially where the new hire’s contribution is qualitative. In such cases, evaluate their impacts, particularly how they make the business better.
What Loan Does My Business Qualify For?
That’s a question I run into often from business owners. Well, there’s plenty of affordable options for all types of business, small to big. The most common is the conventional bank option, credit unions, and lines of credit. You may qualify for one or fail to based on things like your financial track record, lack of sufficient documentation, and credit history. Because of the low rates, such loans are considered a low-interest debt.
Another option is alternative business loans. They are designed for businesses that are growing and in need of quick finance for hiring employees or for other business activities that require a fast and flexible loan. If you fail to qualify for the traditional bank loan or you simply can’t cope with all the technicalities involved in applying for one, this option would suit you. Even though the rates tend to be slightly higher compared to a bank loan, the upsides are that these loans are fast, flexible, unsecured, and less involving.
Cash advances are another option you may want to consider. Here’s how they work. You sell your business’s future earnings to the lender and in return, they give you a short-term loan. Where bad credit disqualified you from a bank loan and you are in need of a quick financing option, a cash advance would serve you well as an alternative.
New hires can be a great addition to a growing business. Of course, the reasons for wanting one vary from business to business. Just make sure they are valid, practical, and generally well thought out. Don’t let the unavailability of funds hinder you from going on with this investment. Consider taking a hiring loan that works for you and remember to keep in mind all the aspects of it that we have discussed.