Is your small business ready for its first employee?
Hiring your first employee can be a momentous time for any small business owner. It provides validation that all those late nights getting your business off the ground were worthwhile, because your company is now starting to grow. But, how can you know when the time is right?
Financial stability
First and foremost, you’ll need to audit your recent business cash flow to determine whether hiring a new employee is financially feasible. This means that you’ll need access to clear records that indicate costs relating to:
- Previous financial stability/trends
- Future financial prospects
- Immediately available funds
Aggregating and interpreting this data can often be a time-consuming exercise. However, with advanced accounting software such as Xero, the calculations are done for you in real-time and can be immediately accessed for quick analysis.
Costs to consider
Payroll
Once you’ve listed the duties that you want your new employee to perform, establish a rough estimate of how many hours these duties would take on a daily basis. This will help you to determine whether a full-time, part-time or fixed-term contract would be most beneficial.
You’ll need to make sure that you have funds set aside to provide regular remuneration. If you’re planning long-term, don’t forget to factor in potential pay rises and additional financial incentives such as a performance-related bonus.
This process can be completely automated with advanced accounting software, saving you time and recording outgoings in your cash flow overview.
Recruitment costs
If you recruit through an agency, you’ll be incurring additional costs for the service they provide. However, you will save money by not shutting up operations for the interview period, and their expertise may help you access a wider pool of candidates.
If you choose to recruit yourself, you’ll need to consider how your regular operations will be affected by applicant administration and interview scheduling. The up-side is that you have more control over the types of applicant you’re contacting.
Insurance
Before your new employee starts, you’ll need to obtain employers’ liability (EL) insurance. This protects your business if an injury should occur at work and result in legal proceedings, and should cover up to a value of £5m.
Administration
To help your new employee hit the ground running, prepare a welcome pack that includes instructions relating to their key duties. Plus, you should factor in time to get your employee synchronised to all existing accounts and systems.
You’ll need to open an employee file and keep records including agreed payment rate and deposit method, contact details and terms of employment. You should also make sure that you have all relevant paperwork relating to statutory employment rights.
Yes, there are costs to consider. But, if you’re ready to meet this outlay, then a new employee can free up your time to expand operations or focus on business development, and offer a new perspective and individual skill set that could take your business to the next level.
If you want more expert accounting advice for small business owners, call on the experts at 3 Wise Bears today.
