We can’t afford more staff. Our staff is working to full capacity and we need more staff. But we can’t afford that. How do we get over this hump?
Thoughts of the Day: Afford more staff is a big step. 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 the optimum cost-benefit ratio.
Finding ways to afford more staff
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 non-payment the way equipment or a building can be seized, financing institutions are less inclined to invest in intangible investments as compared to hard assets.
Businesses often find they must self-finance the start-up phase of expansion hiring. That means building up reserves sufficient to cover the additional cost of new hires. Further, it will positive cash flow sufficient to get through the increased payroll until new staff can contribute to additional profits. To line that up takes planning.
Stacking up against the standard
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. Swapping out unproductive staff for more productive staff can lead to a better payoff.
Use payoff measures and KPIs to figure out who’s producing enough value. Identify if there are any problems to address. Set up responsibility for the production of profits. Move that responsibility all the way down through the organization. Ensure company personnel understands the role they can play in saving money. Focus on profitable revenue, and improving productivity.
Above all, 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 costs. Improve profits by looking for efficiencies. Certainly, eliminate re-dos. Human resources can contribute to cash flow. Have candidates ready at a moment’s notice. Organize performance improving training programs. Sales can recommend which clients to keep. Have enough in the pipeline to dump low-profit accounts.
How much revenue is enough?
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 re-organizing. That is to say, that’s often cheaper and faster than adding new staff. Look for underutilized people in their current positions.
For example, 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 2-year forecasts. Plan expense and cash flow to see what’s going to happen. Share those plans widely. Use profits to add more people as the company grows.
Likewise, 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? HBR Guide to Finance Basics for Managers, by Harvard Business Review.
