A few months ago, Tara Hannigan had a decision to make: Hire a salesperson for her women's athletic wear company or to keep pounding on doors herself.
The president and founder of Athena Sports Gear Ltd. in Edmonton started the business back in 2003 after realizing that female hockey players needed clothes they could throw on under their sports equipment. Undergarments for women playing high intensity sports were hard to come by. Instead, girls and women were forced to take to the rink decked out in clothing meant for men or kids.
Creating women's sports clothing seemed like a good idea, and local retailers began selling the product. But after a couple of years, as customers continued to reach for brand names with meagre female lines, Athena's sales stalled.
So Ms. Hannigan went back to the drawing board to rethink her business model. The result? The company is now working with Key Lime Athletic Wear in Sherwood Park, Alta., and a part-time, commission-based salesperson sells customized clothing to entire sports teams.
That new business model is working. Still, Ms. Hannigan says she wanted to be sure it was viable before bringing in an employee to run it. For a year, she took on the sales role herself – and secured orders from more than 20 teams and sports associations.
"That gave us the decision-making power to say, 'Yes, it's time to hire a salesperson.' We weren't making up stories and hoping it would work. We had to really prove it," she says.
For small businesses and entrepreneurs, knowing when to hire a new employee isn't always easy. Owners want to increase sales and profitability, but in order to do that, they've got to have the revenue to justify the expense. As Ms. Hannigan puts it, it's "a chicken and an egg situation".
Money is the ultimate driving force behind making any hiring decision, agrees David Greenwood, a senior partner in Edmonton with BDC Consulting. It pays to take a good, long look at financial statements first. At the same time, thinking about the future – both in the long and short term – is important too.
"Obviously cash flow is going to determine how many people you can hire. But you also have to say, 'By hiring this person, can I bring in enough revenue in the short period of time to justify this person?'" says Mr. Greenwood.
While some experts claim that any business should already have access to the equivalent of one year's salary before making a hire, Andrew Patricio, owner of BizLaunch, a small-business training company based in Toronto, uses another algorithm: Look at a company's current break-even number. Then add operating expenses to the new person's salary. Based on that combined number, the company now has its new break-even to meet.
"Small businesses are often faced with a challenge. They can't afford to employ somebody new – and they can't afford not to employ somebody new," Mr. Patricio says.
So if a new employee is instrumental to building the business quite quickly, go for it. Hiring makes sense.
Money talks, but when it comes to running a business, owners also have to know how to talk to employees. Not everyone has those soft people skills – particularly entrepreneurs who are used to running the show on their own terms.
"You have to be honest with yourself and ask if you really have what it takes to manage people. Some owners just aren't built that way. They are no good at delegating," says Alec Morley, senior vice president of small business banking for TD Canada Trust in Toronto.
It's also important to have realistic expectations about what the new employee will actually be capable of doing for the company, he says.
"There's a common tendency among small business owners to expect the same unbelievably high level of commitment that they have. But employees are not owners," says Mr. Morley.
At the same time, expectations have to also match what the employee has been hired to do. A salesperson will probably generate more money than someone hired for administration.
Still, admin employees can be instrumental for growth, particularly if a business owner is a good salesperson, says Cameron Herold, Vancouver business coach and author of Double Double: How to Double Your Revenue and Profit in 3 Years or Less.
"If you're spending so much time worried about operations and production that you're not driving sales and marketing, that's a good sign that you need to hire people for that operations role," he says.
As Ms. Hannigan has discovered, there's an alternative to hiring a full-time employee. Employ someone part-time, or outsource the work instead. Just be sure to look at labour laws first and follow them.
Over the years, Ms. Hannigan has brought in retail reps who worked on straight commission to sell her clothing. By outsourcing the work to these entrepreneurs in their own right, she was able to be more flexible. Her current team salesperson is also a commissioned employee who works part-time.
Mr. Herold agrees that outsourcing can be a good idea for new businesses, but he advises small businesses to consider an even more radical idea: Maybe hiring isn't the answer at all. Marketing and advertising could actually be a better, cheaper way to increase sales.
"People often turn to direct sales when they could be looking to some other solution," he says.
Are you ready to hire?
- Are you meeting your deadlines, or are clients complaining about shoddy work? Are things starting to fall through the cracks?
- Are your employees taking more sick days, working through lunches, forgoing vacations, or expressing complaints about being overworked? If you’re a sole proprietor, are you completely run-down?
- Are all your workers on contract or temps? Do they have the commitment to your business you need to succeed?
- Do you have the physical space for a new employee?
- Do you have the money to hire someone? Do you have the time – at least five hours a week – to train a new hire?