Author Topic: How do you know when it's time to hire someone?  (Read 737 times)

gavint

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How do you know when it's time to hire someone?
« on: October 28, 2018, 04:52:54 AM »
Hi everyone,

my business has accelerated significantly this year, my contract list is getting longer and longer.  Every time I cross one job off, two more are added on.  This is obviously good news, but it adds a bit of stress to the mix as well.  It's nice being booked two months out, but it's not ideal for my customers to have to wait that long.  Even raising my rates hasn't made a dent in new bookings.

I'm leery of taking the step of hiring someone, because here in Germany labour laws are strict, and employee costs are fairly high (at least 40% of gross pay), and the bureaucracy associated with it is a headache.  Not impossible, but seriously complicated and irritating.  It is also very difficult to fire someone who isn't pulling their weight here.  You do get a trial period of a half a year to test them out though...

Currently I work alone, and prefer it that way.  One of the reasons I quit my job and went self-employed is that I dislike working with others..  I do have two subcontractors that help me out from time to time, and that works out well.  Problem is, they're not available all the time, and if they were, they're pretty expensive.  I tried a temp worker this year, and hated it - I lost sleep every night thinking about managing the guy, and was irritated the whole day working with him.  I'm just not a team player.

I have done the math, a part-timer would net me a profit of around 10 per hour, even with paid sick and vacation days and the expensive social security payments factored in. 

My big concern is guaranteeing work indefinitely into the future.  One of the beauty things about being a one-man-business is the enormous flexibility it affords me.   No work this week, no problem!  Not just the daily management requirements but also the requirement to hustle for more work would add another level of stress I'm sure I don't want.  I like what I do, and do it well.  I don't want to stop doing it in order to become a business administrator, salesman and manager.

So my question is, how did you other self-employed people know it was time to hire your first employee?  What were your experiences with stress levels afterwards?  Did it make a difference in your net profits plus or minus?

Thanks!
 
« Last Edit: October 28, 2018, 04:59:27 AM by gavint »

maizeman

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Re: How do you know when it's time to hire someone?
« Reply #1 on: October 28, 2018, 07:29:12 AM »
My experience has been in the USA and China, both countries where it is easier to fire employees if they aren't working out or lay them off if you don't have enough work for them to do. But those first hires were quite stressful and driven specifically by the realization that the owners could not keep up with the work on our own. In all three of my experiences, our first employee ended up being awesome, and I think we were incredibly fortunate to get the person we did. But in none of my three experiences was the business model even designed to be sustainable with just the owners doing all the work forever. Phrasing it as "when to hire your first employee" makes it sound like you're committed to growing your business. A lot of the rest of your post makes it sound like you'd be perfectly happy remaining a one-person shop indefinitely.

Fundamentally you need to decide if you are happy with your income and lifestyle working independently, or if you're willing to sacrifice some happiness for the chance to earn even more money (if business stays good) while earning less money than you do now (if business declines and you're essentially unable to lay off your new employee).

If you're making enough money already but have more work than you can keep up with, could you raise prices even more? Alternatively could you start declining jobs from the clients who cause you the most pain and hassle to work with so that you're not stressed about having such a big backlog of client work?

gavint

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Re: How do you know when it's time to hire someone?
« Reply #2 on: October 28, 2018, 08:20:30 AM »
@maizeman , great comments thanks!

To reply to your thoughts:

Yes, I am very satisfied with my current lifestyle as a one-man-show.  The money I am earning now is more than sufficient, I'm able to put a lot away into savings, so that I can go part-time in my mid-forties and retire entirely by 55.  It was my original intention to stay solo and use sub-contractors until the bitter end.  I also enjoy the enormous flexibility, being able to spontaneously do stuff like pick up my kid mid-day or sleep an extra 20 minutes in the morning. 

This summer and fall, however, I had a bit of a wake-up call:  I was sick for three weeks with pneumonia, and then two weeks after getting back to work, injured my hand and lost another week of work.  Despite the lost time I'm having a great year, but it made me very aware that I'm not getting younger.  My work is highly physically demanding and at times flat-out dangerous. 

It becomes a plus/minus calculation, where does the added stress of having an employee offset the stress of uncertainty?  With an employee, I could still have moved my joblist along, earning money while I was sick and injured.  Perhaps it's just something I have to wrap my head around, that in order to be able to preserve my body enough to live a reasonably active lifestyle in my old age, I'll just need to pass off some of the grunt work onto younger bodies, sooner than I was hoping to.     

And yes, I can raise my rates even further, the market here will bear it, I'm sure.  Plan is to raise them a Euro an hour every four or five quotes that I get, until I stop getting all of them.  And also yes, I have been declining jobs and firing customers too!  Still doesn't seem to slow the new job requests though!

The outlook for my line of work in my city is very, very strong.  I li.ve in a rich city, one of the main drivers of Germany's economy, and the population is only getting older - good news for my business  There is no doubt that a good employee would be a solid investment long into the future.  It's just my personal feelings and preferences making me hesitate about taking this step.

How did you do the math on hiring?  What kind of ROI were you looking for in order to justify the new hire?
 

maizeman

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Re: How do you know when it's time to hire someone?
« Reply #3 on: October 28, 2018, 08:41:08 AM »
In a very different industry where labor was a smaller component of our total costs of doing business, but in the on case that was most comparable to your situation -- in that most hours worked translated directly into projects we could bill customers for -- employee #1 came in at a salary such that, if she had enough work to do 40 hours a week, the company was going to make enough to cover her salary, benefits, costs of goods/services, and about 50% gross profit margin.* We set that up so that we could experience a significant slowdown before the owners would have to start putting our own money into the company to cover her salary.

If we'd been in a lower margin business, the decision would have been even harder to make, but I think we probably would have hired her anyway. We were simply maxed out on the work we could do ourselves (and already well past the number of hours we could each sustainably contribute to the business).

You mentioned a part timer would earn you about 10 euros per hour worked. What would your total billable cost per hour worked be? If you're costing you 20 euros/hour and you're pulling in 30 euros/hour that sounds pretty attractive. If they're costing you 90 euros/hour and you're able to make 100 euros/hour you have much less margin for anything to go wrong.

*This percentage is going to be very industry dependent, and will have to be lower in more labor intensive fields.

gavint

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Re: How do you know when it's time to hire someone?
« Reply #4 on: October 28, 2018, 09:28:48 AM »
Somewhat, but not a lot less than 50% ROI is about what I could expect.  I could easily bill a helper out at 35 an hour, possibly a bit more.  Pay for unskilled workers in the trades starts at minimum wage which is 8,85/hour, though I find that a bit of an insult to the worker.  I'd probably start them at 10, and bump them up relatively quickly to 15 if they're reliable and good to work with.  Skilled workers with a finished apprenticeship start at 13/hour.  .  Factoring in social security obligations, vacations, sick days and unbillable time, 15 base pay costs me 24,50, that I bill out at 35, so 43% ROI.  So, definitely makes sense financially - that I can wrap my head around. 

In my experience working for other companies, the 'unskilled' workers outperformed the 'skilled' workers in both quality and productivity.  When I was self-employed in Canada, I had seasonal helpers - and that is part of why I am a bit hesitant.  I hired prematurely without doing the math and without having read anything about being a manager.  They cost me a lot more than I earned from them, and the following year I had a much higher profit working alone than with employees.  I'm a bit older and wiser now though, so could probably avoid those mistakes this time around.       

I really like your comment about having exceeded the number of hours that you could sustainably contribute to the business - that is enormously helpful, helps to put things into proper perspective.   I do feel I'm working beyond that at the moment.  Hours are not the big concern (though I do put in a lot), it's the physical exhaustion, my recovery times just aren't what they used to be.  Coming to terms with aging sucks.

Thanks again.  Sometimes just writing this stuff down and bouncing ideas off of someone else who's been there really helps in the decision making process.  I'll just have to get myself mentally prepared to become a boss, it does seem the most sensible course of action.



« Last Edit: October 28, 2018, 09:36:44 AM by gavint »

maizeman

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Re: How do you know when it's time to hire someone?
« Reply #5 on: October 28, 2018, 10:10:57 AM »
Happy to serve as a sounding board. So it sounds like you're taking about a 1/3 profit margin (24.50/35) if things go right, which does provide some safety buffer if things go wrong or expenses come in higher than you were anticipating. A few other vague thoughts below:

-Since it sounds like the heavy manual labor is starting to wear on you, if work ever comes up a bit short, you could reduce your own hours -- as you're obligated to pay your employee -- and, while you'd make making a bit less money, you'd still get some value from not having to push your own body as hard and having more time to spend on the things you enjoy outside of your job.

-Is your long term goal to build the business to the point where you'd be mostly supervising jobs and meeting with potential customers? To to save enough to FIRE entirely?

-I agree with you that it makes sense to pay a bit more than the minimum wage. If you're just getting your foot back into the managing other people game, you want a first employee who isn't going to be extremely high maintenance. Same logic as the many landlords on this forum who intentionally charge rent that's a little below the highest someone would actually pay so that they'll have options can pick and choose for tenants who won't cause a lot of headaches. Just like there are some landlords who specialize in high maintenance tenants (and may more money as a result), there some businesses/managers who specialize in high maintenance employees (and pay less in salary), but for me it wasn't worth the headache, and sounds like the same applies in your case.

HipGnosis

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Re: How do you know when it's time to hire someone?
« Reply #6 on: October 28, 2018, 12:23:01 PM »
I haven't hired anyone yet, but...
You're leaving out an equation.
Hiring someone could (should?) allow you to spend more time and effort on the things that make or bring in more money.

calimom

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Re: How do you know when it's time to hire someone?
« Reply #7 on: October 30, 2018, 07:40:00 PM »
Hello @gavint , I own a business that is a close relative of yours: interior plantscaping. Basically, it's specifying, installing and maintaining indoor plants in primarily commercial settings like building lobbies, offices, car dealerships and healthcare settings.  I bought the company 10 years ago, and it came with one employee who is still with me, she's great. When more accounts were added, a young man was hired to help with installs and heavy work (that sounds so sexist but he's a beast and can wrestle heavy ceramic pots and 8' trees into the van like child's play) He wanted more hours so he started doing plant maintenance and is great at it.

There have recently been additional clients and I added fresh cut florals to the client offerings on a contract basis. We've always done Christmas/holiday decor. This year I have a new employee - a woman from my daughter's school - to help with the prep and will go on installations with the rest of us. My #1 employee has scheduled a hip operation after the first of the year so the new hire will take over her accounts during the recuperation process and hopefully the ones I still do personally after that. Which should then free me up for sales visits, client concerns, sourcing material, design work and proposals, all of which are important and I enjoy for the most part. I outsource the payroll functions, which is surprisingly affordable and prevents any errors in accounting. I try to pay people as generously as possible and give bonuses while still maintaining a profitable venture  for me. It's a balancing act for sure.

gavint

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Re: How do you know when it's time to hire someone?
« Reply #8 on: November 08, 2018, 05:34:24 AM »
@maizeman  My original intention was to keep working myself, alone with occasional help, (I really do enjoy what I do!) until around age 50, by which time I would have enough together to FIRE.  The goal is to do something else at that time that isn't so physically demanding, and to have the ability to take a fun job that doesn't necessarily need to bring in much money - beer and vacation money essentially.  This has been a huge year for me, and I'm well on the way to making that plan a reality, it's allowed me to accelerate my plans to age 46 part-time and 51 complete FIRE.

Because of workload and body issues, I did make the decision to hire someone in the new year, I went ahead and registered with the Labour Ministry so that I am now allowed to employ people here.  Your comments helped me make that decision, so thanks again!  It's the right move.  I can see hiring a second person and essentially being the on-site manager of a crew.  Without too much effort, I could drum up enough additional business to support those two employees, which would in turn make my business more attractive when it comes time to sell it in 10 or 12 years.

@calimom thanks for your comments, finding the right people is definitely key.  I've worked with a lot of stooges, but a lot of solid people too. 


BicycleB

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Re: How do you know when it's time to hire someone?
« Reply #9 on: November 09, 2018, 06:07:30 PM »
@gavint, it sounds like getting employees you like to work with will be very important. Have you gotten any tips/ done any research on how to hire? Or do you, through experience, already have a good base of knowledge and/or connections to hire people who will really be good?

PS. I don't have special knowledge in this. But when younger, I read an interviewing book and used its suggestions to develop my technique for interviewing roommates; ended up with years of smooth productive relationships as a result. Your case is different, obviously, but good luck to you!

gavint

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Re: How do you know when it's time to hire someone?
« Reply #10 on: November 17, 2018, 12:01:55 PM »
@BicycleB, great tip about the book on interviewing, thanks!  Do you happen to remember the name of the book you used? 

I do have contacts and am hoping to rely on word-of-mouth referrals to help me find someone reasonable.  One contact is highly involved with the refugee centre here in town, and he knows whom among them is responsible and looking for and is legally allowed to work.  There's a potential interviewee already in the pipes through this channel. 

I did also just finish my master certification this year, which included quite a lot of coursework about employee management and motivation.  There was some information about the interviewing process in there that I will certainly review before starting.

Recently I read an article about interviewing, and how gut feelings and first impressions are a terrible way to hire, that employers consistently overestimate their ability to judge someone's character.  There are apparently more impersonal checklist style interview techniques that supposedly yield better results... Don't know what those are yet.

WerKater

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Re: How do you know when it's time to hire someone?
« Reply #11 on: November 17, 2018, 03:53:42 PM »
I'm leery of taking the step of hiring someone, because here in Germany labour laws are strict, and employee costs are fairly high (at least 40% of gross pay), and the bureaucracy associated with it is a headache.  Not impossible, but seriously complicated and irritating.  It is also very difficult to fire someone who isn't pulling their weight here.  You do get a trial period of a half a year to test them out though...
As a small employer (no more than 10 employees) you can actually fire anyone without any reason. At least in theory; I have no practical experience with this whatoesever.
Source

gavint

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Re: How do you know when it's time to hire someone?
« Reply #12 on: November 17, 2018, 05:05:07 PM »
@WerKater , that I did not know, thanks for the link!  That certainly makes the decision easier.  It seems it would be a good idea though to document warnings in advance of letting someone go.

soccerluvof4

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Re: How do you know when it's time to hire someone?
« Reply #13 on: November 18, 2018, 04:51:10 AM »
My advice would be to hire somebody that you could see selling the business to down the line. And make as much of it as incentive based as possible. I don't know the Labor laws where you are but if you have good incentives for people with a little cushion under them that is usually a win win. But finding the right person is probably the hardest.

BicycleB

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Re: How do you know when it's time to hire someone?
« Reply #14 on: November 19, 2018, 11:25:57 AM »
@gavint, I don't remember the name of the name of the book because it was a long time ago.

I am glad you recognize the gap between our gut estimate and evidence-based methods. The book I read had what seemed to me like a third approach, which I summarize briefly here for you. The main ideas I got from it were:

1. State to yourself as clearly as possible the interviewee characteristics you want to find and to avoid. Define your goals, in other words.
2. Prepare and ask open ended questions to allow those characteristics to surface. For example, "What happened when you most recently experienced a difficulty in the workplace?" rather than "Have you ever experienced a difficulty in the workplace?" The second version is "closed" because it asks only for a yes/no answer, choosing among options defined by the interviewer. The first version is "open ended," because the interviewee decides what to say.
3. The questions need not be directly about the characteristics you're interested in, they just need to allow the interviewee to talk about incidents that relate to the characteristic. You as the interviewer listen thoughtfully to detect the underlying behavior patterns. For example, the open ended question above could give evidence about the interviewee's problem solving approach, and might reveal something about their approach to resolving conflict; you don't have to directly ask "How do you resolve conflicts with your boss?" or "How do you solve problems?"
4. Questions about past experiences help because they trigger real world examples, which are much more true to life than answering general or hypothetical questions.
5. Layer your questions to get a fuller picture on key criteria. Layering means asking followup questions, or asking a second question to get a different angle on some aspect that you identified in step 1. For example, if hands-on problem solving is a key factor in your trade, and the answer to the question about a difficulty at work was "I had to build a chair, but we didn't have a hammer for the nails," a followup question might be "Oh, what did you do?" If the answer to that was "I used my shoe to pound in the nails," maybe you're satisfied. If the factor you're interested in not problem solving but time management, perhaps you add another followup, such as "How much longer did it take than a hammer would have?" If the factor you want to know about is attitude toward the business owner, perhaps you follow up with "How did you feel about that?" and "How often were tools missing at that workplace?... In that workplace, what was the most important thing that should have been improved?"
6. You can prepare 2 or 3 layers of questions but you don't need to use all of them. Just use enough to evaluate the interviewee with respect to your underlying goals.
« Last Edit: November 19, 2018, 11:31:49 AM by BicycleB »