The Big Question About Expanding Your Amazon Business: Hiring
Whenever I speak, I consistently get the question, “How do I know if I can afford to hire?” It’s a challenging question because as entrepreneurs, we are wearing so many hats and we are looking for a way to get some relief. Often, we can see that we are limiting our growth because we can’t do it all. However, we aren’t generating enough cash to know we can afford to pay someone consistently.
Most businesses grow their income on a curve. They start out small and increase their income as time goes by. It usually accelerates over time, so we have a curve if we are drawing a graph. When we hire employees, we typically see a graph with a step increase in our expenses. In other words, we're going along at one level, we hire someone and we step up. We go along at this level until we hire another employee and we step up again. So how do you know if you can afford that next step up?
Set Aside Funds for 3 Months
I recommend that you use the cash flow method of Profit First to help you prepare for those added costs of payroll. Specifically, for a period of three months, set aside the cash funds that you are going to need to pay that person before you hire them. For example, you're thinking of hiring someone and you're going to pay them $15 an hour to work ½ time. Start putting that money aside into a payroll account as part of your Profit First allocations twice a month. In this example $15 * 20 hours (1/2 time) * 2 weeks = 600 plus an extra 10% for payroll taxes = $660.
So twice a month as you receive your pay outs and you start doing your allocations, add an extra $660 for this new employee and move that money into the payroll account. This reduces funds that would have gone into your Operating Expense bank account, and you will have to make do in your operations without those funds. Using this approach, you are preparing to pay for that employee before you hire them. If you can operate for three months without having to pull those funds back out to pay for another expense, you are probably ready to hire.
Be Prepared for the Learning Curve
At the point when you hire and start paying that employee, they're not going to be fully productive right away. You're not going to see an immediate boost in your income as a result of hiring that individual. There's a learning curve they go through as they acclimate to their new duties. Not only is the new employee working at less than full capacity, the person training them will also experience a temporary reduction in their contribution as well. These extra costs are a drain to your business finances. The good news is that they are temporary, and you've prepared for it because you've set aside money for three months.
So, as your revenue suffers, you can pull from the funds set aside in payroll account to pay your employees. You're continuing to put money in there to pay them going forward and you also have the funds that were set aside that you can use to supplement the loss of revenue to cover the employee trainer.
Hire Wisely; Fire Quickly
Typically, the boost you were expecting will show up within three months, maybe sooner if you have a great training program and have made a good hiring decision for your Amazon business. If you don’t see the employee coming along quickly, then be quick to fire. You can’t afford to have a long-term payroll drain on the business. As tough as it is, you are better off making that decision quickly. Decide what went wrong and fix it, before you begin again to set funds aside for your next resource.
Originally published on May 14, 2019, updated May 15, 2019
This post is accurate as of the date of publication. Some features and information may have changed due to product updates or Amazon policy changes.