Hiring your first employee is a big milestone. It usually means your business is growing, your workload is increasing, and you need extra support. But before you advertise a job, it’s worth asking one important question. Can your business really afford it?
Many business owners focus on the salary alone, but employing someone comes with extra costs that can catch you out if you don’t plan ahead. The good news is that with the right figures and a bit of forecasting, you can make an informed decision.
Look Beyond the Salary
When people think about hiring, they often start with the annual wage. In reality, that’s only part of the picture.
You’ll also need to think about:
- Employer National Insurance contributions
- Workplace pension contributions
- Holiday pay
- Statutory sick pay and other employee rights
- Recruitment and training costs
- Equipment, software and workspace
These additional costs can add thousands of pounds to the true cost of employing someone. That’s why it’s important to calculate the full picture before making a commitment.
Will They Help You Earn More?
Hiring shouldn’t just be an extra expense. Ideally, it should help your business grow.
Ask yourself a few simple questions.
Will this person free up your time so you can focus on winning new clients? Will they increase your capacity so you can take on more work? Could they improve customer service and help you keep existing customers?
If the answer is yes, your new employee could quickly pay for themselves.
For example, if you’re turning away work because you’re fully booked, hiring someone could allow you to increase your income rather than simply increase your costs.
Check Your Cash Flow
Profit and cash in the bank are not the same thing.
You might have a profitable business on paper, but if customers take 60 days to pay you, paying wages every month could become stressful.
Before hiring, make sure you understand your cash flow.
Consider:
- Can you comfortably cover wages every month?
- Do you have a cash reserve for quieter periods?
- What happens if sales fall for a few months?
- Are your customers paying on time?
Looking at cash flow forecasts can help you spot problems before they happen and give you confidence in your decision.
Do the Numbers First
Before offering someone a job, spend some time running the figures.
Work out:
- Your expected monthly sales
- Your regular business expenses
- The total employment cost
- The extra income you expect the new employee to generate
If the numbers still leave a healthy profit and positive cash flow, hiring may be the right next step.
Using Xero’s reporting and cash flow tools can make these calculations much easier and give you a clearer picture of your business finances.
Could You Start Smaller?
Hiring a full-time employee isn’t your only option.
Depending on your business, you might decide to start with part-time hours, hire someone on a fixed-term contract, or gradually increase their hours as demand grows.
Taking smaller steps can reduce the financial pressure while still giving you the extra support you need.
Don’t Forget Your Employer Responsibilities
Once you employ someone, you’ll have legal responsibilities as an employer.
This includes registering as an employer with HMRC, running payroll, making pension contributions where required, and keeping accurate employment records.
Setting everything up properly from the beginning makes life much easier and helps you avoid costly mistakes later.
The Bottom Line
Hiring someone can transform your business, but only if the timing is right.
Rather than making the decision based on instinct alone, take time to understand the full cost, review your cash flow, and consider how the new employee will help your business grow.
A little planning now can give you the confidence to hire when you’re truly ready, and avoid unnecessary financial pressure.
If you’re unsure whether your business can afford to hire, speaking to your accountant before making the leap could save you both money and stress.
Need help deciding?
Not sure if your business is ready to hire? Book a call with Lucy for straightforward, practical support and find out if now is the right time to grow your team.
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