Eleven years ago I started a gift making business. I was able to grow her to make profit in 2005. In 2006, the profit tripled but in 2007, a challenge set in: there became more orders than I was able to supply per time. I improved a lot but I started having delivery issues with orders. I didn’t employ my first employee that year and the business lost customers
and profit dipped.

Two years later, the business hit the stage again but didn’t make any profit and struggled through 2010 and in 2011, profits hit double digit and I hit the same roof like 2007: more orders, and this time, across states. Unfortunately, I didn’t decide when to employ my first employee to help me cope with growth and the business slumped again. Yes, the business slumped. That was one of my businesses, what about yours? You see, you need to decide when to make the move.

So, when is it time for a small business owner to hire his or her first employee? When the time is ripe and right, you will know. I never knew then, or maybe I was focused on developing another business: One of the reasons stated in How the Mighty Fall by Jim Collins.

Hiring your first employee is a big step. Many entrepreneurs struggle with when to pull the trigger. The short answer is that you should hire your first employee when the incremental cost is justified by any combination of three items: increased revenue, lower expense, and reduced workload for you. In order to make this assessment, you’ll need to understand four things.

1. The true cost of your first employee
Make no mistake; hiring your first employee will be expensive. To be sure, a large portion of the cost will be compensation. This portion of the expense can be mitigated by employing part-time, rather than full-time, help. However, the cost of your first employee goes well beyond the paychecks you’ll write.  You’ll have to spend time and effort to complete the hiring process and then to manage    the employee once he or she is on board. You may need to purchase new equipment (e.g., a computer, desk, and chair). New office space may be required. Not insignificantly, your business will become subject to a plethora of new regulations and taxes. Having hired our first employee, we can attest that this burden is not inconsequential. It’s amazing that a government that’s so focused on reducing unemployment, makes it so difficult to hire an employee and yet, it does (not really applicable in Africa).

2. Additional revenue you will be able to generate
Your new employee may bring in revenue by selling. He or she may increase your capacity to deliver a product or service that fills existing demand. Perhaps the new employee will simply relieve you of administrative duties that will allow you more time to sell and deliver your product or service. Each of these activities will bring incremental revenue to your firm.

3. Expenses you will be able to reduce
Your new employee will surely increase certain costs. However, he or she may also enable you to reduce certain expenses. For example, your new employee may perform functions that were previously outsourced reducing what you pay to these outside vendors.

4. The personal benefit of a reduced workload
The three items above are all quantifiable (although admittedly, some will be estimates). You can run the numbers and determine if hiring your first employee will represent a net increase or decrease to your bottom line. If the result is more profit, the decision is a slam-dunk. However, even if your new employee is a net drain on the bottom line, making your first hire may be a good decision if it gives you, at least, some of your life back. Remember, in the long run, working at a pace that is sustainable for you and your family is critical.

Hiring your first employee is a big decision, but, at some point, you’ll have to do it if your business is to grow. The guidelines above can help you determine when the time is right to make that move. I missed it years back; do not miss it this time. Here is my slumped business blog.

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