For many companies, the core of their culture is bound up with their size. A small startup tries to maintain its closeknit vibe and ability to move very quickly as it grows, while larger firms take pride in their presence, process and strength in a given field.
Despite nostalgia for what once was, many companies strive for growth and expansion yet face challenges in handling current operations as they grow. Whether they aim to reach the 10- or 50-employee mark, businesses can rely on basic planning, tracking and forecasting principles to manage an expansion to realize success and minimize growing pains.
How well a company manages an expansion correlates with the initial planning efforts for adding employees, even when the growth seems to unfold organically.
First companies need to determine whether making a hire is sustainable. According to MIT’s Sloan School of Management, an employee can cost a company 1.25 to 1.40 times his or her annual salary when salary, benefits and employment taxes are included. But more than salary needs to be taken into account. Business owners need to carefully analyze the 12- to 24-month company forecast to determine if a hiring makes sense over the long run.
Is the company's revenue likely to stay at a certain level or increase over time? Will adding new employees improve productivity and thus revenue? What happens if revenue doesn't grow? Is the new employee a salesperson with a variable salary based on commission? Anytime a salary can be tied directly to revenue, this makes the hiring decision easier.
Other types of employees can bring value to the company's bottom line or culture but their salaries will be fixed costs not variable. These employees might help the company improve and grow it faster but figure out what will happen if the business doesn't thrive. Can the company support the additional cash burn every month if the growth isn't as fast as anticipated?
After carefully looking at the forecast, including projected profit-and-loss and projected cash-flow statements and determining that adding new employees is financially wise, employers need to pay close attention to the hiring process. Making a bad hire can cost companies as much as 30 percent of the individual’s first-year earnings.
Companies should hire candidates with the necessary skills but also assess them for cultural fit and potential growth. Management training is an expense but it can add value and save money in the long run. Hiring staffers with greater skills comes with higher costs, so it’s best for companies to promote from within and prepare employees to assume greater responsibility.
Strategic forecasting makes it possible to accurately anticipate as a company grows when it’s time to hire again. Hiring too soon or too late can be detrimental. Indeed 38 percent of small businesses revealed in a Careerbuilder survey that they made a bad hire because of a need to fill a position quickly.
Recruiting too hastily can result in bad hires or even future unplanned layoffs. And if employee turnover is high or employee layoffs arise, a company can end up with a bad reputation and low employee morale. Similarly, if a business doesn’t hire at the right time, current employees will be overworked, leading to burnout and even high turnover. Hiring the right people at the right time is a balancing act that's best performed with careful forecasting.
Whether a company is anticipating expanding to 10 employees or 50, the planning, tracking and forecasting of personnel alongside watching key business metrics will equip the leadership team to confidently handle an expansion and expertly prepare for the future.
Related: How to Lead Your Team Through Change
As a company grows, managing an expansion’s effect on key business metrics is crucial. Make sure that if the company is increasing its fixed costs, revenue is rising to support this. Tracking actual financial results against a forecast will help managers know if a company is on track to achieve expected revenue or is in trouble. If managers know ahead of time that things aren’t going as well as planned, they will have time to make adjustments.
Each employee added will affect the bottom line and companies can monitor how each new hire’s team is performing in terms of client relations and revenue. Did the team bring in new clients? Did it spearhead fresh initiatives or take on additional work? Answering these questions can enable companies to determine how productive an employee is or if there are diminishing returns with a new hire.
Sometimes it's hard to determine how much revenue a new employee brings to a company's bottom line if he or she is not a salesperson. Be sure to set clear goals and objectives for the employee and understand the capacity that this person is bringing the company. If managers forecast how company revenue will be affected with each new hire, then it's a lot easier to determine if the results meet expectations.
Too often owners and CEOs don’t take the time to do forecasting and end up playing a guessing game as the results roll in, as they try to figure out if they're better or worse than expected. Take the time, think through assumptions and set some goals in a forecast. Then the results will be easier to understand.
Building a stronger workforce for the future also involves paying attention to current employees. If employees are satisfied and think that a company’s expansion is for the better, they will likely refer the strongest talent in their circle to the employer. Although hiring through employee referrals can be slightly more expensive, these employees might stay longer and be of better quality than those hired without a referral.