How to Plan for Hiring and Payroll in 2011
For many business owners this year, the budgeting process may grind to a halt once they hit the payroll line item.
Aside from pervasive concerns over the pace of economic growth, there's the rising cost of health care, new health care rules and regulations, and a tax environment that's anything but certain. Even the small business incentives recently legislated seem to many to be too little, too late.
For John Doster, chief executive of CCS Presentations-Florida, a professional audio-visual dealer in Jacksonville, the situation has indeed been paralyzing.
'It's making all business people very uncomfortable in terms of forecasting for the next six, nine, 12 months,' he said. 'Instead of doing anything, people are doing absolutely nothing.'
CCS Presentations currently has 30 employees, and north of $10 million in sales. There are definitely growth opportunities for the business, Doster said.
'We would ideally want to hire another person or two in sales and marketing,' he said. But, he added, the time isn't right yet. 'We would like to do that, but we're not doing it until we get some clarity.'
A stubbornly high unemployment rate is proof that Doster is not alone. (On the positive side, week-to-week employment figures are starting to loosen up.)
Many companies are still intent on doing more with less. Of the 28,000 jobs added to the U.S. economy in September, the majority of the gain was temporary help. Though they are considered a leading indicator of future hiring, temp workers are like a faucet companies can turn on and off to control fixed costs. Seeing them rise can just as easily be interpreted as a sign of unease rather than hope.
For his part, Doster has redeployed some workers during spikes in demand, using teams of existing employees to do extra work to scout out potential growth areas, and hiring outside contractors from time to time.
But with such seesawing activity, how can a small business plan effectively for payroll and hiring?
The keys to navigating the morass, consultants say, are careful assessment, planning and strategizing; flexibility; plus some optimism and opportunism, so the company won't be caught flat-footed versus competitors when the pace of economic growth improves.
Hiring/Payroll: Face the Music
Salaries are the largest part of any organization's fixed costs, which all companies are still taking great pains to control. As such, now's the time to get detailed about mapping out personnel expenses month by month, quarter by quarter, using measures like revenue per employee, and benefit costs per employee, suggested Ken Kaufman, chief executive of CFOwise, a firm that provides outsourced CFO services for small and medium sized businesses.
Then, benchmark those measures against competitors and organizations similar to yours to see how you compare. (CFOwise, Sageworks, Dun & Bradstreet, and the Risk Management Association are a few sources for financial information on small and midsize businesses. Your bank may have access to benchmarking resources, as well.)
Next, you can start to create dream and nightmare revenue scenarios. This will help you determine whether your current employee count would be able to handle the work, should the dream scenario win out.
'You need to figure out how many more employees would you need to hire to raise employee costs to match that revenue growth,' says Kaufman.
Hiring/Payroll: Keep Making Adjustments
Take advantage of being a smaller, nimbler company, and prepare to adjust budgets on the fly. Keep the best and worst-case scenarios you planned out in mind, and be ready to hire or hold off as the situation dictates.
Dan Stoll, principal of The HR Consulting Group in Jacksonville, Florida, who works with 25 small and medium size clients in the Southeast, said he's helping many clients do just that.
'Companies can plan to hire on a contingency basis,' he said. 'If they start seeing 20 percent to 25 percent revenue growth, and if it continues, they can hire 20 people. If it doesn't, they may only hire 10.'
Ken Abosch, North American compensation practice leader at Aon Hewitt, said he's also seeing clients of all size adopt this tactic. 'In the normal business environment, you saw organizations planning budgets in advance, with everything laid out ahead of time,' he said. 'Now we're finding there's a more provisional viewpoint. They're saying ‘Let's hedge our bets, and see how the year goes, and we can adjust accordingly.''
Hiring/Payroll: Plan to Invest in Existing Employees
One positive sign for the economic recovery is that employers plan to invest in their existing employees again. So, if you haven't done so already, you might want to consider the same in order to keep pace and retain employees.
Recent surveys from HR consulting firms show that companies are planning to give modest raises this year. One such survey from Sibson Consulting shows that the largest firms are planning to increase executive salaries by an average of 2.7 percent and those of other employees by 2.5 percent.
Abosch, who saw similar figures from his own firm's survey, noted, 'It's moving in a more positive direction, but it's still a far cry from where we were pre-recession,' when salary increases averaged 3.8 percent per year, according to Aon Hewitt's data.
Hiring/Payroll: Follow the Money
As the year progresses, watch revenue like a hawk, and begin to match up numbers with your best and worst-case scenarios. As trends begin to emerge, and if it looks like the best case might win out, start thinking ahead to what kind of people you need to hire. This will help you avoid hiring someone out of desperation.
Common sense dictates that you should invest in revenue-producing areas first, like sales and marketing, or in the areas that best match up with your strategy.
Paul Leinwand, a partner with consulting firm Booz & Company, emphasized that too few companies think in terms of strategy, in fact.
'What's required is not a hiring strategy but rather a clear understanding of where investments will pay off,' Leinwand wrote in an e-mail. 'Too often, companies think of their costs as just that - a distinct item to manage. But costs mostly reflect the choices of your strategy - what capabilities are important, and where a company has to continue to distinguish itself. Without this, hiring plans all look risky.'
Jason Adwin, a partner in the performance rewards practice at Sibson Consulting, noted that even before hiring is certain, companies consider getting HR and recruiters involved, and proactively look for talent. If you might use this strategy, don't forget to include recruiting costs in your budget planning.
Hiring/Payroll: Act with Confidence
Although most companies, like CCS Presentations, are in limbo -- hoping and waiting for clarity on the political, tax, and economic environments -- at least a few companies are taking the hiring plunge.
At Aribex, a medical device company in Orem, Utah that makes portable X-Ray machines, revenue has grown by about 20 percent over the last three years, to roughly $8 million this year. That growth has given the company the confidence to rebuild its staff after some layoffs in 2008.
Next year, chief executive Dr. Clark Turner said, Aribex will increase staff by about 10 percent, adding four or five people to help with international expansion, on top of its existing 35.
But before doing that, Dr. Turner said he gave his existing employees an average raise of about 3 percent, after keeping salaries flat in 2008 or 2009. It's the first time he's considered hiring since 2008.
'We're more confident about our future, and since we've continued to see revenue growth,' Dr. Turner said. 'We'll need staff to support that growth.'