Hire, Promote or Scale Back?
When a business is growing, it goes through a series of surges, plateaus and dips. During times of growth, it is essential to know how to scale your personnel. Some will focus on building their teams through new hires; others may promote existing talent to new positions; and sometimes the correct answer is to scale back on personnel.
Managing your greatest asset is a critical part of your business. Here are some considerations when deciding which approach is best for you.
Since payroll is the most significant expense in a service business, it makes sense to start by looking at the big picture. When a company is in a growth phase, ensure your employee lineup matches your overhead capacity and strategic goals. Staffing decisions will impact your bottom line, so evaluate your employee levels carefully. Reducing staff might free up some cash, but stretching your people too thin could result in errors and damage your reputation. Your biggest asset is your people. They protect your bottom line, champion your company’s brand, and care for your clients.
Regardless of the season, the key to handling staffing needs is to always have a finger on the pulse of your key performance indicators and data. Based on your pipeline, you can match your sales forecast and revenue data to your staffing costs. If the indicators point toward growth, you can probably afford to hire more people. Conversely, if the realities of your business show you cannot justify additional help, you will need to decide how to leverage and support your existing team.
When deciding whether to hire more people, leverage existing staff or make reductions, first look at your employees’ utilization rates. A closer look at whether employees are overworked or inefficient may tip the scales in one direction or another if you have the financial capacity to hire but are still on the fence.
Can you meet the expense? Make sure you can afford the upfront and hidden costs of hiring. Beyond the obvious costs of salary and benefits, consider the time, energy and investment it takes to effectively onboard a new person. Think about the interview process, training demands, soft-skill investment and the gap in service while your recruit is learning the ropes.
Is it the right time? When a business is desperate for help, there’s a risk of hiring the wrong person. Recruitment can be expensive, so you need to make a habit of evaluating your bench. Pace hiring with your needs and the process of assimilating your new hire with your corporate culture.
Will this person make you more profitable? Your billable and nonbillable staff should not be in balance. Make sure your bench strength has as many heavy hitters as you can keep busy and — and afford. Employees who generate revenue will help you meet your target gross profits. The jobs that overhead staff perform are critical, but you can outsource many of these functions to a professional service firm at a fraction of the cost.
The decision to promote from within can yield many benefits. First, there is probably future potential in your existing pool; therefore, deciding who to promote will be your hardest decision. Make a list of employees who are eligible for a promotion. Divide that list into two columns, those who are teachable and share your core values and those who do not. From the list of employees who make the cut, decide who might need the most coaching or training to assume new responsibilities. From here, you should have a decent idea of who has the most potential to become a legacy employee.
Promoting from within is cost effective, and it is good for morale. When a business makes a habit of rewarding its employees, the result is a loyal and energized team.
The right team makes all the difference in the world. Deciding to scale back is not an easy one, but the overall health of your business is dependent on the state of your cash flow. You can assess personnel inefficiencies by tracking:
- Income per hour
- Labor cost per hour
- ROI on total labor cost per hour
Many business owners instinctively tie headcount to business growth. This is not always the right measure or prescription. The key is finding the right mix for your situation, the balance of in-house and outsourced staff that can allow you to put more time and energy into your profit centers.
If you are struggling to decide whether to hire new talent, promote from within or even scale back, we can help you evaluate your current staff and budget so you can make informed decisions around your hiring and outsourcing strategies.
Frank Granatino, CPA, of Goering & Granatino is a graduate of Missouri State and a CPA, but, moreover, he is a problem solver who uses his deep knowledge and understanding of the industry to find ways to do things faster and more efficiently for his clients. From creating customized reporting templates to spending time with his clients to educate them on how best to organize their businesses, Frank helps companies perform at their best. Often, we have clients comment that Frank feels like a member of their teams. He gets in there, rolls up his sleeves and makes things happen.