When to Hire: 4 Tips

Small businesses often fret over when to hire additional employees. Use this simple formula to automate the decision-making process.

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One of the trickiest issues that small businesses face is deciding when to start hiring additional work force to help the business grow. If you are like most small businesses, the decision is never easy.

On one hand, you cannot grow without additional help. You have reached full capacity with your current staff and you cannot increase production or sales without more workforce capacity. On the other hand, growth can only occur after you make additional hires meaning you must first hire and hope that your increased payroll will lead to increased profits.

So how do you balance your desire to grow your business against the fear that increasing your payroll will not pay off? In other words, how do you change a leap of faith into a well-informed decision? Actually, it is quite simple. Just use this basic strategy to determine when to hire.

1. Understand Supply & Demand

First, by the time most businesses are approaching the stage where they are moving from a scrappy upstart to a sustainable model with a consistent sales record you should understand the basics of supply and demand. As consumer demand increases for your products you can increase sales by increasing supply. Correspondingly, if consumer demand decreases for your products your sales will decrease.

2. Hire When Demand Exceeds Supply or When Demand Will Exceed Supply

Once you understand the fundamental principal of supply and demand it must be applied practically to your business model. Specifically, you should hire new employees when (a) the demand for your goods or services already is greater than the supply your current workforce can produce; or (b) you know that demand will soon increase due to some anticipated change in marketing or otherwise, and you will need to increase supply to meet that heightened demand.

3. Set Performance Metrics

Once the decision to hire additional workers is made you must set performance benchmarks to ensure your now larger workforce is satisfying increased demand for your goods and services. In short, set rigid sales and profitability goals that must be attained to justify the new hires. Only by setting these goals in advance will you be able to track whether your investment in additional workers has increased or decreased the profitability of your business.

4. Be Willing to Reduce Supply

In the end you must keep one thing in focus: it's not personal, it's just business. If your performance goals are not attained after the new hires have started you must be willing to trim supply as needed. If sales do not go up, if profitability goes down, if you were wrong about increasing demand for your products as the basis for the new hires you must be willing to atone for these lessons and reduce the size of your workforce to ensure the profitability and survival of the company.

Matthew Swyers is the founder of The Trademark Company, a Web-based law firm specializing in protecting the trademark rights of small to medium-size businesses. The company is ranked No. 138 on the 2011 Inc. 500. @TrademarkCo