Question: Our staff is working to full capacity and we need more employees ”” but we can”™t afford that. How do we get over this hump?
Thoughts of the day: Unfortunately financing staff isn”™t like financing equipment. Having the funds and payoff model to know when to hire is essential. It may be about affording more people or about affording more of the right people. Build a forecast so you can plan ahead to see when things will get better. Prioritize the list of needs based on optimum cost-benefit ratio.
Employees are considered a cost item from an accounting point of view. The value of your employee population does nothing to boost your balance sheet, except indirectly through improved net income, which often comes well after the time you”™ve hired new talent.
Financing to hire new talent can be a tricky proposition. First, results with new employees are not as predictable as they can be when you”™re buying and installing equipment. Second, like upgrading equipment or software, it can take a long time to realize a payoff from the investment. For these and other reasons, such as employees can”™t be seized for nonpayment the way equipment or a building can be seized, financing institutions are less inclined to invest in intangible investments as compared with hard assets.
Businesses often find they must self-finance the startup phase of expansion hiring. That means building up reserves sufficient to cover the additional cost of new hires. Further, it will need positive cash flow sufficient to get through the increased payroll until new staff can contribute to additional profits. To line that up takes planning.
Start with the existing organization to be sure that the people you have are producing as expected. Often upgrading skills, building talent from the bottom up and swapping out unproductive staff for more productive staff can lead to better payoff.
Use payoff measures and key performance indicators to figure out who”™s producing enough value and to identify if there are any problems that need to be addressed. Set up responsibility for production of profits and move that responsibility all the way down through the organization. Make sure that everyone in the company understands the role they can play saving money, focusing on profitable revenue and improving productivity.
Set up individual and team goals. Get administrative personnel to pinch-hit where they”™re needed most. Get finance to make recommendations on pricing and purchasing. Ask operations to reduce cost and improve profit by looking for efficiencies and eliminating re-do”™s. Human resources can contribute to cash flow by having candidates ready at a moment”™s notice and by organizing performance-improving training programs. Sales can recommend which clients to keep and have enough in the pipeline to dump energy wasting, low-profit accounts.
Check on historical profit margins by employee, client and type of product or service. Find savings opportunities that contribute to a cash cushion. Eliminate overlap and waste. Invest in training and reorganizing, since that”™s often cheaper and faster than adding new staff. Look for people who are underutilized in their current positions.
Consider partnering with someone who does things your company doesn”™t consider essential. Write an agreement to pay them as you get paid. The partner gets an introduction to a new client and you free up cash flow.
Build monthly, quarterly, annual and two-year forecast, expense and cash flow plans to see what”™s going to happen. Share those plans widely. Explain to everyone how profit will be used to add more people as the company grows.
Make sure that when you do hire it has maximum impact. What will help the most in the shortest amount of time? Do it by the numbers. Make sure that what you think is essential will deliver fast.
Looking for a good book? Try “HBR Guide to Finance Basics for Managers” by Harvard Business Review.
Andi Gray is president of Strategy Leaders Inc., strategyleaders.com, a business-consulting firm that specializes in helping entrepreneurial firms grow. She can be reached by phone at 877-238-3535. Do you have a question for Andi? Send it via email to AskAndi@strategyleaders. Visit AskAndi.com for an entire library of Ask Andi articles.
