Making $4 Million but Nervous to Make My First Hire
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When is the right time to make my first hire as a growing business owner?
One of the biggest questions we get from business owners is when do I make my first hire? If you hire too early, you could create a cash flow nightmare. But if you wait too long, you become the bottleneck that's holding your business back. So, how do you know when it's time to take the next step? Today, Entre Leadership's head coach John Felkins answers a question from Mark, a business owner, who wants to know when it's time Time to make his first hire, who that person should be, and what he can realistically afford to pay them. Let's get to
Do it. Here's Mark's question. I left university with a PhD to start a custom home building and remodeling business that I love. I'm 39 years old with a pregnant wife, a three-year-old, and a two-year-old. All right. I've been in business for five years and have grown revenue and profits 100% year over year for the last three years. Good job, Mark. That's awesome. This year's revenue is projected to be between $3 and $4 million. Alright, well it sounds like you've got a healthy business.
How do I calculate a living wage for myself before hiring anyone?
As the only employee, I'm wondering when it's appropriate for me to hire a project manager to help me divide up the job sites. I'm not sure how many years of track record I need in order to trust that my referral network will provide consistent demand. If that first hire is supposed to be a project manager, the market Market rates are about $120,000 a year, and that seems like a large portion of my business profits, which are about $350,000 to $400,000 a year before I pay myself. I can probably manage the current workload myself, but any growth, and I'll start to fumble. Alright, Mark, first let me say you're asking the right questions. Sounds like you've got to help. Healthy business and that you want to grow it.
I want to call out, that's a decision. If you want to grow the business, then hiring somebody is important. Here's a few things that jump out of your question. Number one, you say your profits are about $350,000 to $400,000 before you pay yourself. What you pay yourself is your business, but let me make sure at this point, if you're deciding to grow the business, you need to pay yourself just a living wage. You don't need to be buying new trucks and ski boats and all the other things. You need to take everything that you possibly can and put it back in the business. You're investing in the business for later growth. So figure out what a living wage is for you.
What type of role should I hire first to get the fastest ROI?
Make sure you've got the essentials covered in your life and put the rest of the money back in the business. That's what the living wage is all about. The second thing is the type of role that you're hiring is important. Now, you say you're hiring a project manager and you're getting so many job sites you can't get to all of them and keep them on the rails. And I get that, and that's a good problem to have, but it's still a problem. So you need some help. It's important what kind of help that you hire because you want to get a return on that investment. You want an ROI on that role as fast as you possibly can. possibly can. You don't want to just add overhead that isn't going to help increase things. So a project manager in a construction world, the right person set up the right way is going to be a role that's going to help you get that return on that investment fast.
So that's something that's important. The third thing is is I really want you to reduce the risk in making this higher in terms of what you need to pay this Person. You're saying the going rate for a project manager is around $120,000 a year. Okay, you figured out what your living wage is. You've got $400,000 in profit, and you need to pay this person about $120,000 a year. But here's the thing: don't lock yourself into $120,000 a year of salary.
How can I structure a project manager’s compensation to reduce financial risk?
Put this person on commission. Give them a share, give them a stake in The outcome. I remember Dave's story from when he first got started. His first hire, he told them, I cannot afford to pay you a salary, but I am willing to share with you the profits that we bring in in the business. And that's what I would do if I was you with this project manager.
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Chapters
7 chapters
1
When is the right time to make my first hire as a growing business owner?
0:05–1:11
2
How do I calculate a living wage for myself before hiring anyone?
1:11–2:38
3
What type of role should I hire first to get the fastest ROI?
2:38–3:57
4
How can I structure a project manager’s compensation to reduce financial risk?
3:57–5:11
5
What are the benefits of using commission‑based pay for a new hire?
5:11–6:31
6
How do I shift my focus from working in the business to working on the business after hiring?
6:31–8:08
7
What next steps should I take to scale my team and become a ‘Pathfinder’ leader?
8:08–9:01