Taking on your first employee is a big step for a small business, bringing with it added administrative, managerial and legal responsibilities. Having to pay someone else regularly also has serious cashflow implications.
This feature was written in association with Milkround.
Employ someone too soon and you could damage the financial viability of your business. On the other hand, delay and you could permanently inhibit your growth prospects while piling too much work on yourself.
As a discussion on UK Business Forums this summer demonstrates, it’s not a decision that small businesses take lightly. Indeed, it is one with which many SMEs wrestle.
Mike Gilsenan, branch director of Ewemove Crewe & Nantwich, says taking on the firm’s first employee was “a big step”, and especially for a business that’s only six months old. However, having recently taken on an apprentice to do the firm’s social media marketing he says “the payback is the ability of the business to grow”, as it is allows him to focus on what he does best, which is face-to-face meetings with clients.
“Most business owners don’t realise their time has a value,” suggests Paul Rosser, from R&D Consulting, in a post in the UKBF discussion. “Their job is to push the company forward and increase turnover and profit. Employing staff is the key to this and should be taken on as soon as possible.”
Rosser adds that after starting the company in 2012, he now employs 10 people “who deal with the day-to-fay running of the business”.
Tony Harrison, CEO and founder of 3D Generation, employed 28 staff in a previous business, but admits that with his current business he is in a dilemma about whether to take on employees or not.
“I am sort of toying with it every day,” he says. He explains that he is not against employing staff per se. “My dilemma is mainly having set up again; do I want to employ people straight away? When there is the concern about how they get paid if you don’t get the revenue in,” he says.
In a post on the UKBF forum on this topic, Steve Brownlie, UK director consulting services at business growth consultancy Palladous, says the decision “rests on the long-term plans of the business owner” and at what point not hiring someone will result in the business failing to grow at the optimal rate as a result of excessive workload.
“Either staff won’t have enough time to do what they were doing in the first place and growth will level off, or worse still the business will have to start turning work away,“ he says.
Francesca Hall, senior marketing manager at Milkround, says modelling cash flow is absolutely key when thinking about hiring.
"The cost and investment in retaining a head into the business depends on the revenue that will be generated from a commercial perspective to justify the spend. You need to think about the return on investment and ask yourself; 'how much revenue will this head contribute? In what ways will this individual be able to move our team forwards? Where do you see the role evolving and what is the candidate's potential for the future?'"
“Too many businesses ‘cop out’,” claims Brownlie. “They won’t invest in staff until it’s easy to afford it, but it won’t be easy to afford it because they don’t have enough resources to grow and meet their current workload.”
However, after running the business alone with his business partner for three years, Martin Harrison of Copify is one SME business owner who finally decided that the time had come to take on the company’s first employee when it took on an apprentice recently.
“It was going be more productive in the long term,” he says. “I needed to spend more time on sales and marketing because ultimately that is what makes the business grow.”
As a startup, Harrison says he was mindful of the impact of the financial cost, around £15,000 a year of taking on the apprentice. “We needed to make sure we had enough cash to cope with a worst case scenario where the revenue and orders dropped off. He says he has learned from a previous experience when a company he worked for went bankrupt as a result of increasing its payroll too quickly. “We didn’t want to be in a position of having to get rid of someone in three months’ time,” he adds.
Harrison urges SME’s considering whether to take the plunge.
“Do your financial projections to ensure you are able to afford that employee if revenues decline, and think very seriously about whether it is sustainable and whether it will help your business. You are taking a leap of faith and things will turn up that you won’t have anticipated,” he warns.
3D Generation’s Harrison says the decision to take on its first employee is especially difficult for a small business because that individual person has to be a very special person, “almost like a co-founder rather than an employee,” he suggests.
Such employees are few and far between, indeed Harrison reckons 99% of people fall into the ‘being a drain’ category. “It is difficult to find anyone with the same absolute passion for the business as I have,” he adds.
Sanjay Aggarwal, who runs Dent Recruit, a company that supplies staff to SME dental practices, agrees that the lack of someone suitable can be a factor in an SME owner’s thinking. Some business owners have unrealistic expectations that people can do everything and about how much they can do, he says, suggesting that rather than seeking the ‘perfect employee’ they may need to consider settling for less.
For Alex Falcon-Huerta, owner of Soaring Falcon Accountancy, the decision to take on her first three employees this year was relatively straight forward. “I didn’t really have a choice because my workload had become too much for me to manage,” she says.
In her case, she says her only concern was that she wasn’t ready; “I didn’t have a clue about the paperwork, the contracts, employment laws and health and safety,” she explains. Before employing her new staff, Falcon-Huerta says she took advice from Bedford College on taking on an apprentice, and from small business advisers Wenter and the Federation of Small Businesses.
“Small business owners need to understand what employees’ rights are and aren’t, they need to understand the basics of HR, employment contracts, and probationary period. If they aren’t ready to take HR seriously, they shouldn’t take on people,” says Aggarwal.
At the moment, Harrison says he is not convinced that the advantages of employees outweighs the disadvantages, as a result of which he says he “outsources everything” including accountancy, receptionist and administration. “What I can’t outsource is sales,” says Harrison hinting that his first employee could be in that discipline.
However, UKBF’s member Adamchy has no such dilemmas. He suggests a couple of simple criteria for deciding if and when SMEs should take on staff. “If you find your workload is actually making you ill and if delivery times are extending and customers are complaining,” he says.
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About Christopher Goodfellow
Journalist and editor with nine years' experience covering small businesses and entrepreneurship (ChrisGoodfellow.net). Follow his personal twitter account @CPGoodfellow and his events business @Box2Media. He has written for a wide range of publications in the UK, Ireland and Canada, including The Financial Times, The Guardian, The Independent and Vice magazine.