Do you need financing to hire new team members?
Do you need financing to hire new team members?
Cash is king. I believe businesses that can be fully self-funded are better for it.
BUT… when do you make investments in hiring? and how much cash do you need? Is this something you always need financing for?
Here’s some basic math:
Let’s assume your time is worth $150/hr (don’t worry if you’re not billing hourly)
Let’s assume you need a VA to take 20/hrs of work / week at $35/hr
Let’s assume you will now be able to spend an additional 15/hrs/week on generating sales. For this example- let’s just assume you are able to generate $150/hr * 15 hrs / week * 4 weeks = $9,000 in extra revenue each month.
Your VA will cost $2,800/ month
That’s a 321% ROI ($9000/$2800 or Your “extra” revenue (increase in revenue) divided by the cost of the investment)
1. When do you make this investment?
Ideally, prior to you and your team running out of capacity to serve your customers, but close enough to generating new revenue so you can continue to cover the costs.
Questions:
Is your team over capacity?
Are your customers in desperate need of more support?
2. What kind of cash do you need on hand?
This depends on your current sales funnel.
2 to 3 months is best, and I can get behind 1 month if your sales pipeline is very strong or you have a high recurring revenue
Questions:
How confident are you that you can generate revenue quickly?
Are you reaching enough recurring revenue to take the loss?
Are you personally willing to reduce your pay to cover the onboarding time of the new employee?
3. Do you need financing for a new hire?
NO!
Venture and PE backed companies should be investing their raised funds into new hires. That is the #1 reason for raising money. The #2 is to develop tech (which requires people which is why #1 is hiring). More people = Faster growth = faster exit = happy investors
BUT — small businesses that are running on sustainable revenue, do not need to seek any kind of financing to expand your team. Go slow and you’ll be better off.
Other considerations:
Remember you won't gain 100% of that time back right away and it can take some time to generate more sales
Is this a 1099 hire or a W2. W2 may be a lower hourly rate but will come with payroll processing, taxes, & possibly benefits if you’re at that point
Software and tools are often overlooked. Gmail is $5/month/person last time I checked, Many tools are $15/person/month. That can add up quickly so make sure you cover that before you hire.
Losing a new hire costs a lot of time and money. Take your time. Hire slowly (but before you run out of capacity).
If you can find a 1099 to W2 and part-time - to full-time hire even better! Good people are worth a lot more than their salary and losing an employee costs money.
