Understand your business

30 March 2016


3 min read

Hiring new staff is an exciting phase for any SME. Suddenly, there are people to delegate to. People who are specialists in areas that you may have been scrambling to cover yourself. People who give you fresh energy and enthusiasm for the future of your business.

Being a job creator is one of the most satisfying elements of overseeing a fast growing team. But while new staff are what drives your business towards growth, it’s also likely that they’re the biggest cost you’re facing. That’s why it’s important to keep the cost of a growing team sustainable and justifiable. Think of it this way – is there any other business cost you’d let escalate without careful planning? Here are three smart yet simple ways to help successfully manage the financial implications of a growing team.

1. Look at the long term

It’s tempting to make hiring decisions after getting one or two new accounts. You may feel an overwhelming sense that you’ve ‘made it’ after landing a big fish. However, you will need to project earnings/growth much further than you might think to rationalise the decision. Specifically, make sure you’ve estimated income for the next 12-24 months before advertising.

It’s important to remember that the income from an account may roll in over 3-6 months, but the average term of employment may be much longer. According to research by Aussie firm McCrindle, the average person stays in their job for 3.3 years. Job mobility may be higher for under 25s, at 1.6 years.

The one exception to this is casual employees. If you’re in an industry where casualisation is common – for example, hospitality – you may have more leeway.

2. Remember that salary isn’t the only labour cost

Taxes, superannuation, WorkCover (percentage of payroll), other insurance, fringe benefits, training; it all adds up.

When you’re negotiating salaries with potential new employees, it’s a good idea to have a multiple in mind. Most employees don’t negotiate for their package – they negotiate for their take-home pay. Speak with your accountant, or internal financial controller, to determine a multiple that reflects the true cost of the average employee.

3. Be considerate and consistent with performance management

Staff salary should always be justified by the income they help bring in. That said, some positions are more directly linked to income than others. For example, it’s easy to compare a salesperson’s salary to the dollar value of sales they bring in.

Develop KPIs that are quantitative but reasonable. For example, with essential support staff, you have a couple of options. You could take the rise in earnings over their employment period, and deduct what’s attributable to other staff, such as the sales team. Or – and this may be simpler for your accountant or bookkeeper – you can compare their salary with alternative sources of task fulfilment, such as outsourcing. For example, with a little research you can find out what it would cost you to hire a temp or an online worker to complete the same tasks to the same level. If your employee is significantly more cost effective, they’re doing a good job.

The key is to remember to think long term, and review your team structure regularly. If you do, you’ll find the burgeoning cost of a fast growing team is well worth it.