As someone who has grown several businesses, including turning solo PR practices into ones with employees (as well as choosing not to do so), I have wrestled with many of the dreams and doubts that confront most independent consultants at one point or another.
Hiring your first employee completely changes the nature of the business. It’s not just about you anymore. You now have another mouth to feed, added government bureaucracy to cope with, and management issues you never had to consider. On the upside, you can handle more business, reclaim some personal time, and hopefully generate increased profits.
So how do you decide whether to take the leap? Start by asking yourself the following questions:
- Why did you go solo in the first place? Did you see yourself as an entrepreneur starting a growing business or did you go solo out of necessity because your career circumstances changed? Or maybe you were looking for a lifestyle business that could give your life balance and flexibility.
- Do you value independence more than anything else? Choosing to become an employer changes the way your business works. If you have ever been married or lived with a significant other, you know it’s a lot different than having your own place. That’s not all that different from being solo versus having an employee.
- Have you been using subcontractors for a while already? If you’re already sending money out the door to subcontractors — either to help handle workload or to execute specialized tasks — this gives you a taste for the management responsibilities you will have. It also helps guide you on the type of hire you should consider and frames your budget considerations.
- Are you paying yourself fairly? Don’t even think about hiring an employee if you aren’t already making more than enough from your business. Employees always cost more than you expect and there’s no sense in taking on the burden of being an employer if you’re not succeeding yourself. One of the best pieces of advice given to business owners is to pay yourself first.
- How much time do you spend selling vs. servicing clients? Having an employee to execute on client expectations should free you up to network and pitch more business. As a solo, you’re already a salesperson, but you need to ramp that up once you have a workforce to support. If you don’t have much time now to sell, an employee might make that easier.
- Do you know what it takes to be an employer? Have you ever held a senior management position where you have had to manage employees as well as have P&L responsibility? Do you know all of the HR, tax and regulatory challenges you’ll be undertaking? There are many service providers that make things like payroll and benefits easier, but you still need to do a lot on your own.
- How diversified is your business? If you only have one or two clients, the risk of taking on an employee may be too much. Lose a client and you could find yourself deep in a hole. You never want to have any client make up more than 25% of your total revenue — and less than 10% is even better for long-term stability.
- How well can you see the future? Is the current business boom that makes you want to hire an employee likely to last? Or is it tied to some sort of cyclical event? Do you service clients with seasonal needs who may threaten a smooth revenue stream going forward? You want to do your best to anticipate future revenue that will sustain your payroll requirements.
- Are you prepared to lay off your employee if revenue dips? This may be the most important question to ask yourself. If you’re not ready to part ways with an employee when business fails to meet expectations, you probably shouldn’t become an employer. It’s one of the hardest things you’ll ever do, but the cost of inaction will always be higher.
- Would having an employee help or hurt your benefits situation? This is a tricky question and depends greatly on individual circumstances. You would do well to consult with your accountant, lawyer, and other professionals about what will change once you have a payroll employee. Generally, your benefits must be the same as your employees. That might hurt if you have set up a generous self-employment retirement plan to help set aside money tax-free. On the other hand, having an employee might improve your health insurance choices over what solos can currently obtain.
- Are you prepared for the unexpected surprises employees bring with them? It turns out that employees take vacations, get sick, and have babies. Are you prepared for handling their absences? Even if you don’t provide things like paid maternity leave, you’ll still have to figure out how to cover that temporary loss of productivity — and that often isn’t cheap.
- Have you talked to others who have taken the leap? There are lots of others out there who have had to consider these questions already. Talk to them and see what insight they can share. It’s not up to them to advise you on what to do, but they can certainly help improve your knowledge to make a smarter decision.
This is by no means a definitive list of questions you need to ask before hiring your first employee, but it’s a good start. Building a business can be a great adventure — and every hire after the first one becomes easier — but it’s not for everyone.
What other questions would you ask before taking the leap from solo consultant to full-time employer?