How to Reduce the Financial Risk in Hiring New Employees

How to Reduce the Financial Risk in Hiring New Employees with AMOA Financial

Tony Hsieh, the founder and CEO of Zappos once estimated that his company lost “over $100 million” while in the process of scaling his business due to poor hiring decisions. His story ended up well; despite the losses attributed to hiring, his company was acquired by one of the titans of the digital age: Amazon. But it doesn’t work out that way for most. In fact, poor hiring is one of the major problems that sink small businesses. You need to get it right, but getting it right can present quite the challenge interview processes are often too subjective, and you only meet a candidate a few times before you have to make a hiring decision.

There’s a cost to acquire new employees. If they’re not a good fit and they leave, there are costs associated with turnover, re-training and replacement. If they’re a toxic fit, there are costs on the productivity of others.

How do we minimize some of the financial risks associated with hiring while also making sure we get the right people on board?

Step 1: Don’t overreact to how busy you are.

Small business owners often wear many hats and are very busy. Many times, they assume that adding more people to the team might alleviate some of their frantic operations. This assumption can create a rush to hire before all the facts are lined up, and making hasty decisions when it comes to hiring could backfire in a big way down the road.

Step 2: Consider outsourcing tasks.

You might not need a full-time employee on staff in order to accomplish the items on your daily to-do list. Perhaps certain tasks can be outsourced for a monthly fee or a package-based cost. This sort of arrangement is most likely going to cost less than a full-time hire.

Step 3: Do the math.

In general, you’ll want to make sure that the money generated as result of hiring a new employee is going to exceed the amount of money that the employee costs. That’s not perfect for all roles. Some admin roles may be essential to a company but may not generate revenue directly. But for the most part, the numbers needs to add up. If you keep hiring roles that don’t generate revenue, it puts backbreaking pressure on whoever is focused on sales.

Step 4: Recheck with a focus on real need.

What does your business need right now to make sure it’s growing or achieving the main goals? Hiring a “strategic account manager” might seem nice, but it might not really move the needle in the short-term. For example: you might be in desperate need of getting your books in order. Dedicate money to that. Once that issue is resolved, then you can reconsider the strategic account manager. Hiring (or outsourcing) what you legitimately need help will benefit company growth.

Step 5: Highlight culture when you hire.

Let candidates meet teams and observe them working. Have videos and documents about culture. What is the founder’s mission? What does he/she want to be seen as now? Be transparent in answering candidate questions. If they understand your culture and have some self-awareness about how they work best, they won’t stay in your process if they don’t like your culture. This can weed out some costly hiring mistakes.

Step 6: “Date before getting married.”

Consider bringing in new hires on three-month project trials so that you can see how they interact with the existing team. (That’s almost akin to what you’d do with an outsourced financial firm, for example.) Create mini-apprenticeship programs so that you don’t commit full-time salaries to people based on 2-3 interviews. Have them work with your existing teams and complete goals. If it’s going well after a few months, then, you can be more confident (financially and personally) in the quality of the hire.

This isn’t a flawless process; some new hires will just end up being a miss. But you can get better and minimize the fiscal issues by following through and considering some of the approaches above.