For many founders, recruitment is often one of the most challenging aspects of running a successful venture. As your startup grows, so do does the urgency for hiring talent to manage the increased workload. Managing cash flow can be tricky at the growth stage and you have to decide the ideal moment for hiring employees before your business starts to suffer. If you hire too quickly you could risk making a bad hire who adds little value to your business. However, if you delay hiring, your startup may lose income in the form of lost opportunities.
To help startups hire at that sweet spot where opportunity meets capacity, we’ve shared some tips on how a financial hiring plan can help founders recruit more effectively.
Determine if your startup has enough income to justify new hires
If you’re running a growing startup, you’ll already be aware of how time-consuming and expensive it can be to recruit new employees. Recruitment budgeting can often leave founders in a catch-22 situation. Your business needs to have enough work to justify hiring staff but you also need to determine how many employees you need to support new business. Make sure your budget is factoring in all the costs of new team members so there are no unexpected surprises. It’s easy to forget the associated costs of recruitment and only consider an employee’s basic salary as the main cost of hiring new staff.
Create a budget to get a better overview of recruitment costs
An effective financial hiring plan will enable you to budget for any related recruiting costs so you can allocate funds accordingly. Take into consideration the costs of using recruiters if your startup is in the hyper-growth stage. Whilst they can save you time, recruiters tend to cost an additional 15% on top of each new hire so a £70,000 salary actually costs £80,500 in reality. Training and personal development is another cost to factor into your budgeting, particularly if your startup operates in an industry where mandatory certifications are required. Keeping your workforce accredited and upskilled could cost up to £1000 annually per employee so make sure you’ve planned for this too.
Allocate sufficient cash flow to cover new employees probationary period
You must account for your new employee’s ramp-up time when they join your company. In time you’ll make a return on your new hire but realistically it can take up to three months to effectively assimilate the new team member into your systems and processes. This means budgeting for the worst-case scenario on the assumption that your new employee is unlikely to cover their recruitment costs in their probationary period. Ask yourself if the business has sufficient cash flow to maintain NIL productivity and is the new hire likely to cover their costs by month 6 for example?
Ensure your new hire will bring in a healthy return on your investment
Define whether your new employee is being hired to generate revenue or cover overheads. Budget accordingly for staff across all departments for example a sales manager is clearly a revenue-generating position whilst an office manager is there to save you time and keep things ticking over. For your sales and marketing teams, you’ll expect them to start bringing in a return on investment by the end of their three-six month probationary period. For your administrative teams, their recruitment costs need to be completely covered by your revenue-generating employees. This is why it’s so important to project how much more revenue you think you’ll earn with a new employee. You need to be able to demonstrate in your financial hiring plan how much revenue your new hire is forecast to bring into the business and if you have the sales pipeline and cash flow to cover their annual salary.
Whilst it can be tricky to find that hiring sweet spot, using a financial hiring plan can help you forecast your revenue and budget more effectively for new recruits.
If you need help securing great talent for your startup, check out our tips for hiring right the first time around to avoid making costly and time-consuming recruitment mistakes.