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Report on Business When to hire that first employee: a chicken-and-egg debate

Alicia Liebregts and her business partner were 'looking for ways to free up our time and grow our business, versus getting bogged down in the day-to-day details,' so they decided to hire a contractor.

Moe Doiron/The Globe and Mail

Alicia Liebregts knew it was time to make her first hire when she encountered a somewhat pleasant entrepreneurial predicament about a year and a half ago.

Rapid growth meant she and her business partner could no longer handle the number of clients that their marketing and advertising firm had acquired. "The very first person we hired was a project manager because we needed some help alleviating our capacity,” recalls Ms. Liebregts, co-managing partner of Toronto-based Hatchery Marketing Group.

“We were growing but looking for ways to free up our time and grow our business, versus getting bogged down in the day-to-day details of trying to push our projects through,” she says.

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Ms. Liebregts took a close look at her financials and decided to hire a contractor rather than a full-time employee, tapping her network of creative industry contacts to find prospects.

“We didn’t want to commit to a full-time hire until we knew we had the income to support that person,” Ms. Liebregts explains. “It was about trying to understand what would happen if the business collapsed in three months. You have a little more flexibility [with contractors].”

It turns out that concern was all for naught. Hatchery continued to boost its revenue, and the four-year-old firm now employs six contractors.

For owners of small businesses, taking the plunge and making that first hire can be a daunting proposition.

Many entrepreneurs make the crucial decision to hire only when they have become so overworked that their business teeters on the brink of collapse. Others realize that focusing on lower-value tasks and not business development is a sure-fire recipe for organizational stasis.

When they do decide to hire, the big question is whether to bring an employee aboard once they have the revenue to support that salary – Ms. Liebregts’s preferred strategy – or roll the dice and recruit in anticipation of future business that may or may not materialize.

From there, business owners must navigate the complexities of the recruitment process, put effort into employee retention and engagement and cover a raft of related expenses, from payroll remittances to vacation days and benefit costs.

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In other words, it’s a decision not to be taken lightly, but one that’s essential if an organization is to go from tiny startup to growth-oriented company.

Nabil Khoshkhesal, managing director of the Vancouver-based accounting firm Khosh & Company, counsels his small business clients to hire first and ask questions later.

“If you want to grow your business, bring more people on board, even if it scares the hell out of you, even if you don’t know whether you have the money to do it,” he advises. “The business will grow to support them.”

Creating a job description for somebody isn’t about creating a laundry list of things you don’t like to do.

— Karen Fischer, partner, RK Fischer & Associates in Sarnia, Ont.

Mr. Khoshkhesal has watched many small businesses fall into a vicious cycle, stalling the hiring process in anticipation of new business that never arrives. Unfortunately, because they haven’t hired, their leaders lack the capacity to find the new clients that would drive additional growth.

According to Pierre Laplante, a partner at the small business consulting firm NuFocus Group Inc., in Dieppe, N.B., hiring sooner rather than later can help CEOs avoid making hasty recruitment decisions that could result in a negative impact on the company’s performance.

“When you hire someone, you don’t need to hire for now, you need to hire for the future,” he says.

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Making a recruitment mistake can be devastating, Mr. Laplante cautions, which is why it makes sense to invest the time to hire the right person for the job.

Indeed, the expense of employee turnover can be crippling for a small business, not only in immediate severance costs, assuming the employee has passed his or her probationary period, but also to recruit and retrain their replacement.

And if the terminated employee alleges wrongful dismissal, expect those costs to increase exponentially.

Many businesses encounter predictable human-resources pitfalls in the hiring process, says Karen Fischer, a partner at the business consultancy RK Fischer & Associates in Sarnia, Ont. Among them are underestimating the costs of recruitment – she recommends budgeting about $1,000 to market a position to prospective hires with a paid campaign on platforms such as LinkedIn or Indeed – as well as creating ineffective job descriptions and failing to comply with employment law.

“They don’t understand that creating a job description for somebody isn’t about creating a laundry list of things you don’t like to do,” she says.

As Ms. Fischer notes, most young companies lack formalized HR policies, which exposes them to significant employment-law risk. Violating employment standards or human rights laws are a common pitfall. They also have no employee onboarding procedure that could help new staffers make an immediate impact.

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Entrepreneurs also often underestimate the hidden costs of bringing on a first employee. Among them are paying the employer’s share of employment insurance and Canada Pension Plan premiums and covering Workplace Safety and Insurance Board levies in Ontario.

Budget permitting, Ms. Fischer recommends hiring an HR consultant to help with the process.

'If you’re more of a risk-taker, I would say to hire before you’re ready. But it depends on how fast you want to grow,' says Matthew Tanner, owner of Coast to Coast Coffee Inc.

Coast to Coast Coffee Inc.

Matthew Tanner, owner of the Toronto-based coffee roaster Coast to Coast Coffee Inc., made his first hire last year to help fill orders during a 30-per-cent, year-over-year growth phase. The part-time employee works two days a week.

Unanticipated expenses soon followed. Mr. Tanner did not realize, for instance, that the role would qualify for WSIB coverage and require the payment of associated premiums. He had already built the cost of the employee’s salary into his revenue forecasts, however, so he could easily absorb the extra expense.

Mr. Tanner waited longer before making that first hire – working overtime by himself to fill orders and retaining earnings to ensure that he could afford his first employee – a decision he still stands behind.

“If you’re more of a risk-taker, I would say to hire before you’re ready. But it depends on how fast you want to grow. I’ve always been a slow-and-steady-growth guy, so I like to make sure there’s no financial risk when I’m taking steps to grow my business.”

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