While you’re considering how much you can afford for a new employee, remember to also budget for payroll taxes and benefits. As a rule of thumb, budget 15-30% of their salary for additional expenses.
3. Estimate expected additional income. The goal of hiring employees is to enable you to make more money. How much will your new employee realistically help you generate? In what time frame? Be conservative in these projections, especially at first.
4. Estimate how much you’ll have to pay an employee. You need to know how much you’ll have to budget for your employee(s). Once you decide what role and tasks you want your new employee to assume, determine comparable pay rates (see Chapter 6).
5. Estimate monthly taxes and benefits. Don’t forget that you also have to pay taxes and benefits. The total amount will depend on which benefits you decide to offer.
6. Estimate additional costs. Having employees means you typically have other additional costs. Will you pay higher rent for more space? Have increased telecom, travel, or energy expenses? Even greater use of office equipment? Make a guesstimate of some of these costs as well.
A good plan is to save up for payroll, just as you save for other investments. Set up a separate payroll account with enough money to cover at least three months worth of payroll and taxes. Expect to make payroll from monthly cash flow rather than this separate account, which acts as an emergency backup in case you have a bad month. This financial cushion allows you to hire with more confidence.
worksheet: How Much Can I Afford?
Use this worksheet to estimate how much money you’ll have available each month to go towards wages/salaries.
| A. Current monthly profit | |
| B. Estimated increased monthly income | |
| C. Subtotal: Add (A) profit and (B) increased income | |
| D. Expected monthly salary/wages | |
| E. Estimated monthly taxes/benefits | |
| F. Estimated other monthly costs | |
| G. Subtotal: Add (D)wages, (E) taxes/benefits and (F) other costs | |
| TOTAL: Subtract line G from line C. |
SUCCESS STORY
Successful Cheese Maker Hires for Skill Sets She Lacks
In the early ’80s, Mary Keehn, a breeder of Alpine goats along the foggy Northern California coast, began to dabble in cheese making using milk from her herd. By 1983, she was ready to transform her business from raising goats to creating fine cheeses made from goat’s milk. Cypress Grove was born. Housed first in her home and later in a small creamery, Keehn started small. For two years, she employed just a part-timer to ladle cheese, clean up between batches, and take care of anything else necessary. Then, as goat cheese increased in popularity in the U.S., Keehn needed more help. “I hired people here and there as I needed them, not with any grand plan. I hired out of necessity,” she says.
Keehn brought aboard people who had skills in areas she did not, such as accounting. For that, she looked in-house for help literally. “When she was in high school, my oldest daughter did the books as a school project,” she says. All four of Keehn’s daughters worked in the business. “I think it’s important in a family business that everyone be involved to some degree. I enjoyed having my daughters work here when they were young. I always knew where they were – and knew they were safe!”
As the company continued to grow, Keehn, recognizing the importance of hiring for attitude, brought on board good people and trained them to do what was needed. “When we hire someone, we pay attention to them, to how they work, and to their capacity for taking on more responsibility,” she says. “If you push people, they’ll leave. But by paying attention to what they can do, you can see the person grow with the business.”
By the time Cypress Grove had a staff of ten, the creamery became cramped. “We worked in our first creamery until we were stepping on each other’s toes,” Keehn says. “But we weren’t ready to move into a larger space yet so we scheduled split shifts and did other things to help the situation. You can always work it out if you get creative.”
Despite her hiring successes, Keehn says she regrets not filling one particular role sooner: a seasoned operations manager. “It was the best hire I’ve made but also the one that took the longest,” she says. “When I was just starting the business, I knew I could benefit from someone with an operations background, but I honestly didn’t think I could afford it.” After years of managing the day-to-day business, Keehn found it difficult to hand over responsibility to someone. “If an operations or management person is good, they need autonomy or they won’t be successful and neither will the business.”
Keehn’s staffing method—first hire part-time help, ask for support from family members, but then tap the expertise of established business people—has paid off. More than a quarter-century since selling its first cheeses as a two-person enterprise, today Cypress Grove employs a staff of nearly fifty. Their cheeses, including Humboldt Fog, have won an impressive array of awards, including first place from the American Cheese Society and three World Cheese Award gold medals.
To get used to becoming an employer, you might want to start slowly: hire part-time workers or contractors and track your expenses. See whether you’re confidently able to make payroll. If the kind of help you need can legally be fulfilled by independent contractors, get used to the financial burden by first hiring contractors rather than employees. That will give you an idea of whether you can manage the cash flow without worrying about having to lay someone off if the budget is too tight.
Logistics
As you think about adding an employee or employees, there’s a whole bunch of logistical nitty-gritty details that are probably also on your mind, such as where they’ll work, their work hours, even where they’ll put their stuff.
So take a bit of time to work out the basic logistical aspects of having an employee. And don’t worry: most of these details become fairly obvious pretty quickly.
