When is the best time to make a new hire? Hiring too late can mean work (and clients) falling through the cracks; hiring too early can mean unnecessarily increasing your expenses. Payroll is one of the largest expenses a company will face, which makes the decision to make (or not make) a new hire an important one.
Hiring is often looked at as an HR or manager’s responsibility. However, the decision to hire is a financial one as well. The timing of the hire and type of hire you make has a direct impact on your bottom line—for better or worse. This is why your hiring decisions should align with your financial strategy as well.
5 Hiring Tips from a CFO
The hiring tips below are based around deciding what type of hires to make and when to make them. These tips will help you align your decision with your financial strategy to ensure the benefit you receive from this hire is conducive to the associated cost.
1. Use Your Forecast as a Guide
While there is not magic formula for determining when a company should hire a new employee, the decision is often based on when a need or opportunity has reached a breaking point. However, this isn’t always the smartest way to make a hiring decision.
Making a new hire should be based on your growth strategy. It should also depend on when the quantifiable value of projected benefits (increased production, improved efficiency, sales growth, new product/service opportunity) outweighs the projected costs (salary and benefits).
The best way to make this analysis is with a 1 to 3-year forecast. This forecast will act as a projection or scenario-building tool, mapping out the financial benefits a new hire would bring to the team as well as the financial costs.
If you don’t already have a forecast in place that details when to make new hires, it’s time to make one!
2. Hire for the Valleys—Augment for the Peaks
One mistake many companies make is hiring for the peaks. This means hiring for when business is at its busiest. However, this means that after the busy period wanes, you’re left with additional employees and expenses, having to decide whether you can “keep them busy” or if you have to proceed with layoffs.
Most “seasonal” companies know the times they will get busy and hire seasonal workers to staff these periods. However, many non-seasonal companies can experience seasonality as well. For instance, as outsourced CFOs, we can predict that summers will be relatively slow for new business as many decision makers take vacations during the summer. We also know that the fall months, after school is back in session and companies are re-engaging after being on vacation, will bring more leaders looking to take control of their financial strategy and accelerate sustainable growth.
Before making a hiring decision based on an increase in business, analyze whether this increase is due to a seasonality trend or sustained growth. The best way to determine this is to look at lead and sales flow year over year. Do you usually see a peak this time of year? If so, how much of an increase is it, and when does this increase tend to slow to normal levels?
If, historically, the peak is temporary, then the hiring solution you make should be temporary. A full-time, in-house hire for a temporary peak means that after the peak has ended, you will be paying for an employee that you don’t necessarily need. Instead, augment for these peaks with more strategic, temporary hires such as seasonal employees, freelancers, or fractional/outsourced solutions.
3. Bridge the Gap Between Part-Time and Full-Time
If you’ve exceeded the capacity of your current team but have not yet reached the threshold for needing a full-time hire, don’t fall into the trap of hiring full-time and looking for ways to fill the employee’s extra time. Remember, the hire should be based on a forecasted cost-benefit analysis, not based on emotional reactions to perceived needs.
Instead, bridge the gap between your part-time need and a future full-time need. This means finding an alternate solution to complete the needed work until the needs, cost, and benefit justify a new full-time hire.
To bridge the gap, you can:
- Temporarily spread the load between existing employees
- Hire part-time with the possibility to grow into a full-time position
- Utilize a fractional, outsourced solution
4. Balance Experience, Time, & Cost
When you’re considering solutions for certain hires, keep in mind that more experienced workers can often get more done in less time and, in most cases, can produce higher quality results.
For instance, if your books are consistently late, accounts receivable and accounts payable are delinquent, or if your bookkeeper simply seems to have too much on his or her plate, this doesn’t necessarily mean you should hire another full-time, low-level bookkeeper. In this instance, an expert, fractional Controller might be a better hire. While they cost more per hour, the Controller would get faster—and better—results. They could not only support the work load, but also implement expert processes and systems that streamline your needs and help make your existing bookkeeper more effective. The cost may be equitable to (or even higher than) a full-time hire for fewer hours, but the outcome would be more beneficial by adding a more senior financial expert and increasing the efficacy of your existing hire.
5. Don’t Underestimate Fractional, Outsourced Work
Some leaders get nervous about the idea of using fractional, outsourced work. However, this solution can give companies the best bang for their buck when it comes to augmenting for peaks, bridging gaps, and balancing experience, time, and cost.
There are several benefits of utilizing fractional, outsourced work:
- Outsourcing certain roles in your company is a good way to get a higher level of expertise than you could afford with a full-time hire.
- Outsourced professionals are also often more experienced than part-time hires, who are usually part-time because of lack of experience or time constraints as opposed to being fractional by design like outsourced professionals.
- Fractional, outsourced professionals are used to taking on new clients and are better equipped to hit the ground running than in-house hires who statistically take 5 months on average to ramp up to full productivity.
Although hiring is ultimately an HR responsibility, the decision to hire should be influenced by your company’s financial strategy. Strategizing quantifiable thresholds that must be met to justify a full-time hire, as well as strategically “bridging the gap,” can help to ensure your labor costs help—without hurting—your bottom line.
About the Author
Jill Tavey is an experienced outsourced CFO with over a decade of high-level financial expertise and experience. Her ability to negotiate, make and maintain key relationships, and shape strategic direction has helped propel multiple companies through significant growth.
You may also be interested in…
A virtual CFO, also called a VCFO or fractional CFO, is a consultant or company that provides CFO services to one or more businesses on a part-time or ad-hoc basis. In the past, a true CFO was usually a highly paid, full-time employee that only large corporations...
What Is the Purpose of Accrual Accounting? There are two methods of accounting: cash and accrual. In cash accounting, transactions are recorded when payment occurs. In the accrual method, revenues and expenses are matched and recorded at the time the good is delivered...
Gross profit is one of several key profitability metrics that help companies evaluate their financial health. It is necessary to determine gross profit before you can calculate other important figures such as net profit, EBITDA, and the company’s bottom line. Gross...
Selling a business, especially in the current economic climate, can be a complicated process. You want to get the best price from the right buyer and smoothly transition the business to the new owner. The process takes a significant amount of planning, negotiation,...
An essential factor in business management is the ability to discern where the company is headed and what course to chart for maximum profitability. Intuition and guesswork are not sufficient to create a rational roadmap for the future. For that, the process of...
Cash management is the lifeblood of any business. It can make or break any company regardless of how great the product or service is. In fact, cash-flow related challenges are the reason 82% of small businesses fail. Cash flow is a metric that every company should...
In sports there is a stance known as the “Universal Athletic Position,” or “ready position.” Feet apart, knees bent, hips back, chest forward, arms extended-with minor variations, this stance is favored by athletes as a starting position for many different sports....
There are many reasons why two companies may choose to combine into a single entity. Expanding into new territories, adding technologies, reducing costs, eliminating competition, boosting revenue, and increasing market share are just a few examples. The legal joining...
For many businesses, product inventory is their biggest asset. Effectively managing the inflow, storage, and outflow of inventory is critical to the financial success of the company. When inventory management is done right, customers can place orders with confidence,...
In every company, there are important decisions to be made on a daily basis. Some decisions are mundane and have only short-term consequences. Others are strategic and can affect the company’s performance and profits for years. Too often, these critical decisions are...
The purpose of a business tax strategy is to maximize income by legally reducing the amount of taxes owed. Because tax laws and government regulations are constantly changing, your tax strategies need to evolve as well. A Certified Public Accountant (CPA) is a tax...
In order to make confident and effective business decisions, company executives need good data. They need to know how the business has performed in the past, where it stands financially right now, and what its prospects are for the future. They also need to be able to...