Before You Hire Again: 5 Numbers Every Business Owner Should Check
Your business is growing. Your team is overwhelmed. You're ready to hire. But can your business actually afford another employee?
It's a question many business owners don't ask until after they've made the hire.
Imagine you're running a successful counseling practice.
Your therapists have full schedules. New clients are calling. Your administrative staff is struggling to keep up.
The solution seems obvious.
Hire another therapist.
You find an excellent candidate, offer a $72,000 salary, and start preparing for your practice's next phase of growth.
But here's the question:
Will that $72,000 employee actually cost your business $72,000?
Not even close.
And understanding the difference could save your business from an expensive mistake.
1. Know the Real Cost of Your New Employee
Salary is only one part of an employee's total cost.
You also need to consider employer payroll taxes, benefits, insurance, training, software, and other employment-related expenses.
Consider this fictional example:
Annual Cost of Hiring a Therapist
Salary: $72,000
Employer payroll taxes and benefits: $12,000
Additional software, supervision, and administrative costs: $6,000
Total estimated annual cost: $90,000
Suddenly, your $72,000 employee represents a $90,000 annual investment.
Before hiring, calculate the total cost—not just the salary.
2. Calculate How Much Revenue They'll Actually Generate
Hiring another employee only makes financial sense when the position creates enough value to justify its cost.
For revenue-producing employees, estimate how much money they can realistically bring into the business.
For a counseling practice, consider appointment availability, expected attendance, reimbursement rates, and collection delays.
For a law firm, consider billable hours, expected collections, and the type of work the employee will handle.
Remember: Scheduled appointments and billed revenue aren't the same as collected revenue.
Base your projections on realistic performance, not perfect conditions.
3. Determine the Employee's Contribution to Profitability
Let's return to our fictional therapist.
Annual collected revenue: $110,000
Total annual employment costs: $90,000
Remaining contribution: $20,000
That sounds encouraging.
But the $20,000 isn't necessarily additional company profit.
Your practice still has shared expenses, including office space, administrative support, marketing, and other overhead.
The real question becomes:
How much money will this employee contribute after all relevant costs are considered?
That's the number that matters when evaluating whether the position improves profitability.
4. Make Sure Your Cash Flow Can Support the Hire
An employee can be profitable on paper while creating immediate cash flow pressure.
Why?
Because payroll begins before the employee necessarily generates enough collected revenue to cover their costs.
A new therapist may need several months to build a full caseload.
A new attorney may need time to develop a productive workload.
Meanwhile, payroll continues every two weeks.
Before hiring, review your cash reserves and prepare a cash flow forecast.
Can your business comfortably cover the new employee's expenses during the transition?
If the answer is uncertain, your hiring timeline may need adjustment.
5. Consider the Impact on Your Existing Business
Not every hire directly generates revenue.
An administrative assistant, billing specialist, or office manager might not produce billable services.
However, these employees can still create measurable financial value.
They might improve collections, reduce overtime, decrease billing errors, or free up revenue-producing employees to serve more clients.
Ask yourself:
Will this position increase revenue, reduce expenses, improve efficiency, or protect the business from operational problems?
Ideally, you should be able to identify how the position contributes to the company's overall performance.
Growth Should Be a Financial Decision, Not Just an Emotional One
Hiring additional employees can be an important step toward building a successful business.
But more employees don't automatically mean more profit.
Before making your next hire, understand the total employment cost, expected financial contribution, and impact on cash flow.
A growing company needs more than additional people.
It needs a financial strategy that supports sustainable growth.
Make Your Next Business Decision With Confidence
At SlaughterBooks, we help established service businesses understand their numbers and make informed financial decisions.
Our bookkeeping, financial reporting, and fractional CFO services provide the clarity business owners need when evaluating growth opportunities.
SlaughterBooks — Fearless Financial Execution.