Personnel is often the single largest cost for businesses, making budgeting and hiring two crucial elements to consider while navigating an uncertain future. The Covid-19 pandemic forced many small business owners to cut staff and has made hiring difficult. Attracting talent in a market with high unemployment may not be an issue, but interviewing and making sure you hire the right people is more challenging. Many businesses have to hire for remote positions, complicating onboarding. And most of all, in these uncertain economic times, any new hire should contribute immediately to your bottom line.
Preserving cash is critical right now. Compassionate small business owners may want to employ everyone they can, but overextending your business by hiring too many people may drive your business into the ground.
So, if your company is healthy and you’re ready to pursue additional growth, how do you hire the personnel to help you do it in this economic climate? You should be careful if you’re considering hiring right now, but there are responsible ways to do it.
Forecast your fixed and variable personnel
Headcount at a company is typically broken down between variable and fixed personnel, which aligns with the budgeting concept of fixed and variable costs.
Fixed personnel are the full-time employees that you need to run your core business. The costs associated with them grow and shrink less linearly with your revenue than your variable personnel. Variable personnel are typically positions like sales reps who work on commission, or seasonal staff that you pay more or less depending on how much demand you have coming in.
It’s crucial to forecast how much personnel you’ll need in the coming months to maintain course or reach new revenue goals. You must have an idea of how much cash you have to pay employees, so you don’t commit more capital than you have available.
Be conservative with your hiring
In uncertain times like these, you may be required to downsize your workforce quickly if demand suddenly dips. It’s better to cut staff too quickly and miss out on capitalizing on opportunities than it is to hold on to your staff hoping for those opportunities and not getting them. So what do you do when it’s time to bring talent back?
There is a lot of slack in the labor market right now as many people are looking for jobs. While hiring is a little easier, the market is still tenuous. As such, it makes sense to hire new employees on a short-term, contractual basis. They can immediately contribute towards your company’s growth and, if demand stays strong until the global economy turns a corner, you can convert their contracts to full-time agreements. Contract positions allow you to pay workers without paying payroll taxes or other costs like health insurance. This way, you’ll have greater control over the variable costs and be able to better forecast the future.
If demand does dip, contract employees are easier to furlough, and you won’t pay unemployment taxes on them. No business owner wants to hire people only to have to let them go two months later, so be sure to have a clear idea of how much you can afford to hire given current and projected demand.
Plan for the future
Government small business loan programs like the Paycheck Protection Program may eventually resume, but for right now, businesses can’t rely on government money to encourage hiring or to keep current staff employed. Instead, you should use this time to solidify your competitive position in the market.
Some businesses, like online shopping companies, have actually thrived during the pandemic. If you’re doing well enough to consider hiring, right now may be a good opportunity to take market share from competitors or expand into new product lines or verticals. Hiring new people is one of the best ways to improve your business’s capabilities and increase its operational bandwidth.
You can be conservative with your hiring while still thinking critically about your company’s future. Hire people to amplify the parts of your business that are already working. That may mean more salespeople, more product engineers, or even more customer service agents. Additionally, you should use this recovery time to lay out plans for new opportunities and take the time to hire the right people to lead these new initiatives.
Eventually, the economy will bounce back and your competitors will become even more competitive. The labor market will be leaner and it may be more difficult to hire the right people as other companies pursue growth as well. If your company is doing well now, it’s a great time to get the right people on staff to lead your next wave of development. Just don’t do it without considering the costs and the potential benefits.