Startup Freak Community for entrepreneurs and small businesses
Far and away the largest expense to a business is labor costs. In a new business without a steady stream of revenue making payroll can be a huge drain on your cash reserves. Depending on how well capitalized your business is, two or three off weeks with expenses and payroll coming from reserves can mean the end of your business. Though there is little you can do about the cash reserves sometimes, there is a lot you can do to determine the need of increased payroll or when deciding if another employee is needed or other lower cost measures will suffice.
Staffing Requirements Are Determined Differently than Other Resources
While it is common in purchasing equipment to choose to purchase something with greater than currently needed maximum capacity, the opposite is true with staffing. Staff are simply too expensive to have excess on hand. A computer program or piece of machinery that you can grow into as a business is reducing a future cost. An employee is a current and future cost and typically increases in cost over time. In addition, discharging an employee often entails expense as well in payment of benefits so the discharge of an employee that is unaffordable reduces that cost but does not eliminate it (sometimes for months).
Even giant corporations and big box stores will allow for a slightly lower level of customer service during peak periods than take on the cost of additional employees. This is not by accident or mistake, but rather a fiscally responsible business decision. If they cannot maintain their bottom lines based on hundreds of sales per hour per employee it is not reasonable to believe a new business at a much lower sales rate will be able to.
Automation
Some staffing requirements can be met by even basic automation. Having a mailer program is cheaper than hiring another secretary for your sales department. Inventory control and shipping software allows a single person to do what it used to take 3 people to do in mail order or internet sales. When looking at products available, instead of thinking of the $1000 upfront for these sort of things, think how few paychecks it will take to even a minimum wage employee to exceed that cost.
Outsource and Temps
If you are having a large sale or event that will require additional staff look at hiring temps through an agency rather than attempting to hire part time employees. The agency will bear the cost of advertising and pre-screening reducing your time and investment in getting temporary help. When taking into consideration the reduction in costs for advertising for help and the fact if they do not work out a simple phone call will get them replaced it is often cheaper to go through an agency even if paying a fee on top of the wage.
For some things like receptionist duties it may prove to be cheaper by some margin to hire a receptionist or answering service than to hire a person full time to do nothing but answer the phone and take massages. You will need a very high call volume to justify a full time person and the small busy tasks that are given to these type of employees like filing are just as easily accomplished in 10 minutes at the end of the day by the employee responsible. There are many Services that can have the added advantage of providing service to you and your customers 24 hours a day instead of a full time hire that only covers from 9-5 at a higher cost.
Reducing your payroll in these ways will protect the business and therefore the job security of any other staff. Deciding not to pursue these options based on moralistic views of providing jobs is really just risking the jobs of all, as well as yours as a business owner.
