Considering the cost of hiring for small business owners
Taking on staff is an essential part of growing a business in its initial stages, but it is not without its difficulties.
A company faced with the need to hire staff should find itself in a relatively strong position as it should be a sign that workloads are increasing.
With SMEs making up a large proportion of the UK economy, owners need to strike a fine balance between ensuring growth and protecting the fundamental aspects of their business.
The costs associated with new employees tend to be higher than for larger businesses, according to the Federation of Small Businesses.
FSB research – done in partnership with the Centre for Economics and Business Research – suggests it costs more than £35,500 on average to hire the first employee.
That compares with more than £25,000 for a company with between 20 and 49 staff and the additional costs are not tied down in wages.
In the main, it is simply related to the costs of doing business – from tax bills and insurance liabilities to pensions or other outgoings.
Tax liability and National Insurance contributions change with the employment of new staff – accounting for about a fifth of hiring costs.
That figure could become even greater when auto-enrolment is introduced for smaller firms in the year ahead.
Time must also be considered and while placing a value on it can be difficult, smaller businesses could end up spending more time on administration than they do on generating income.
Small business growth can drive economic recovery and SMEs need to recognise the importance of maintaining momentum.
Knowing about potential costs should make cash flow management easier while reducing the risk of winding up a company should financial troubles prove too much to deal with.
The key for small business leaders is to think through the process and to ensure that sufficient funds are in place to cover the addition of new staff.
Financing such moves could be beneficial in the long term but owners should ensure their decisions do not put their company under unnecessary strain.
By Phil Smith