Happy new financial year! To help you put your best foot forward, I’m going to provide you with the know-how that responds to the most common question that business owners ask me when it comes to financial management; ‘How can I know when (and if) I can afford to hire someone?’
It’s usually earlier than you think! You also don’t need a spare $100k in the bank. But rather than a ‘chorus of excitement’ from the thought of extra help, I commonly hear a ‘chorus of hesitation’.
I can understand why… hiring ‘quality’ help can come at a six-figure cost, and what if it doesn’t work out?
The ‘do I’ or ‘don’t I’ decision is overwhelming for many business owners, and I see it driving 3 typical scenarios:
- STALLING: business owners avoid the decision to hire by continuing to work long hours. But the real struggle of trying to keep on top of everything remains.
- HIRING A JUNIOR: this is a common mistake! Why? Because now your already limited time, needs to manage and train up their ‘inexperience’. Rather than be lured into the lower salary because it seems less risky, go for capability in someone experienced.
- SEEKING MORE SECURITY: with an aim to be well and truly overloaded with work, before taking what’s seen as ‘the financial plunge’.
My goal this month is to help you abolish the unnecessary level of ‘hesitation.’ While it’s important to be cautious, too many business owners don’t have visibility of their numbers (I’m talking having a ‘budget’ and monitoring monthly cashflow).
And, too many have never been taught how to conduct a simple forecast of financial scenarios to form what is essentially a risk assessment; a view of a ‘best and worst case.’ Is this the case for you, too?
In this article I’m going to help you understand if you can afford to invest in hiring help and at the same time, get your key decision-making tools set up in line with the new financial year. Get excited! You’ll be able to use them as your anchor in financial management and decision making (informed by numbers, rather than gut instinct!)
Let’s say, like many business owners, you’re struggling to keep up with your workload and you want to hire experienced help at a salary of $120k.
THE AIM IS TO:
#1 – Have a plan to neutralise their cost to your business ASAP. The ‘mindset shifting trick’ – is to break their anticipated annual wage into a monthly cost ($10k). So, now your focus goes to ways in which you can cash flow the extra $10k per month. Which is much more digestible than staring at a $120k figure, right? As part of your plan, you also want to monitor their performance from the get-go, to ensure you’ve got the right person.
HOW TO FORM A FINANCIAL VIEW
Step 1 – Think about how many hours of work you need to recover their $10k monthly cost to you. If for example, in a serviced based business they’re charged out at $250 p/h, that’s 40hrs p/m (or just 10hrs p/w) of work.
Step 2 – Looking at your budget and cashflow position, evaluate if (and when) you can best afford the monthly outlay. Then determine what you’re going to call your ‘breakeven point,’ to recover their cost (and your cashflow deficit) ASAP. Usually this is around the 3-6month mark.
Step 3 – Set your focus to productivity and consider:
- How much more work do you need to take on to cover the $10k?
- Can you get them to produce more work?
- If you can delegate work to them, what does your freed up time represent in financial opportunity?
Step 4 – It’s now time to run some numbers and examine potential ‘play out’ scenarios.
Once you ‘play out’ some scenarios, can you imagine how suddenly your comfort levels change because you can see clear evidence that your once cost will end up evolving into a worth-while investment?
As a best-case 3-month scenario: breaking even is a great result! Remember, their value will flourish with training and confidence. Hiring someone is never a ‘quick fix’.
As a worst-case 3-month scenario: If you discover that they’re not showing signs of building revenue value, then it’s time to investigate potential reasons why. They may not be the right person and it’s so it’s essential to be clear on this ASAP.
I advised this exact process for one of my clients with a Family Law firm in the outskirts of Melbourne. I worked with her to establish a budget, cashflow position and varying forecast scenarios, before encouraging her to take the leap of faith and hire a senior lawyer. She saw financial gain after 6 months, and with the extra capacity she’s reaping record revenue and getting some more time with her kids.
Numbers really are your mechanism to abolish hesitation and achieve visibility. With visibility comes confidence and control. You might discover that you’ll be in better position to hire your new lawyer in October rather than now. That’s great! Because rather than going by ‘gut’, you’re now letting the numbers in your budget inform your decision.
This article was originally published in the Law Institute Journal, as a part of the Leaders in Practice program – a collaboration between SEIVA and the Law Institute of Victoria. Learn more about Leaders in Practice here.