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…
3 Reasons you Need a Financial Forecast
If Your Company Doesn't Have a Financial Forecast, You're Wasting Time and Money Every company has goals. Where do you want your organization to be 5 years from now? 10 years? Most even have a general idea of the benchmarks you need to hit to get there—"By increasing...
Determining the Payback Period of a Business Investment
Whether implementing a new software system, adding office space, acquiring another company, or any other substantial investment, companies want to know how long it will take to recoup the money they spend on major purchases. The way to determine this is by calculating...
10 Steps to Prepare for Raising Capital
Finding funding for your business is a process that takes a lot of time and effort, especially during the startup phase. Many entrepreneurs fail in their first attempts at fundraising because they are poorly prepared. Others get themselves into trouble by choosing the...
How Can a Fractional CFO Help You Save Money?
In these days of economic challenges and changes, many companies struggle with uncertainty about the future, seeking tools and resources to best position their businesses for financial success. Often it can be beneficial to bring in a financial advisor who has...
What is a Capitalization Table and Why Does it Matter?
Capitalization tables, commonly called “cap tables,” are highly useful spreadsheets maintained by companies that have multiple owners or investors. Cap tables are especially important for private companies at startup and in the early stages of the enterprise. They...
Top Benefits of Financial Staff Augmentation
Many companies experience times when they find their accounting departments short on staff or short on expertise. Sometimes emergencies and financial needs arise that are beyond the capability of their financial personnel to address. This is particularly true in times...
Qualities of an Effective Profit & Loss Report
A Profit and Loss (P&L) Report, also called a Profit and Loss Statement, is a key financial document that details a company’s income and expenses over a specific period of time. This time period is typically a month, a quarter or a year. Depending on company needs...
What Is a Quality of Earnings Report?
When a business sale, acquisition, or major investment is contemplated, one important step in the due diligence process is the generation of a Quality of Earnings report, sometimes abbreviated as QOE. Even though a company may have strong financial statements, those...
What Is the Purpose of Accrual Accounting?
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...
3 Things to Know Before Choosing a Supplier
Choosing the right supplier for your business can be complicated, especially if a large portion of your product comes from a single company. For many companies, supplies are secondary only to labor in their expenses. But choosing the right supplier has even more...
How Does a CFO Influence Strategic Decisions?
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...
CFO Hiring Guide: Analyze Your Needs & Maximize Value
Whether your business is a startup or an established enterprise, you need a strong, agile financial team with a highly competent leader. Some companies think they can get by without a Chief Financial Officer (CFO) until they start preparing to go public. Other...