There is one crucial element in starting a new business often overlooked by entrepreneurs---the cost of recruiting essential personnel.
According to Raj Sheth is the co-founder of Recruiterbox, founders and CEOs forecast the costs of running their businesses in many ways.
Usually, they take into account multiple fixed and variable costs, including sales, marketing, product, and administration.
What they don’t often do, Sheth argues is forecast how many people they may need to complete these forecasted goals and what these essential personnel may cost.
He continues “forecasting the cost of hiring and keeping an all-star team is one of the most important (if not the most important!) job of the start-up CEO.”
Adds Sheth, if a business maintains momentum, and if the organization intends to keep it that way, plans to employ the best people remain crucial.
Sheth believes this effort requires planning for outliers and exceptions. More money and/or equity may be necessary in making that key hire.
Experts agree people will change a business, but cash will not, so the expense associated with people should make up the largest buffer in a forecast.
Sheth gives this example, consider a company budgeting to hire three senior programmers. It seemed that the company maintained a sufficient budget to make all three offers simultaneously, but one of the first offers made turns out to be a lot higher than expected.
Should the company let the person go or hike up the offer to secure them? Answers vary depending on each situation, but companies can come up with a logical method to help them arrive at the maximum number which they can contribute, considered the “contribution factor.”
The contribution factor consists of a combination of the amount of time the candidate would save the team lead and the change of productivity percentage of the entire team.
So, according to Sheth, if the company saved 40 percent of the time of the team lead and increased the overall development pace by 15 percent, it more than compensated for the salary the potential hire demanded, especially when compared to someone with less than half the percentages above.
Sheth argues one can only make these calculations based on hunches after speaking with the candidate, but keeping this in mind can help solve employment forecasting problems.
The percentage game may not apply for every job description, but momentum in a small business comes at a price of stretched forecasts. The best way to cope with this is to always prepare to change forecasts, even if it means updating them on a weekly basis.
Sheth’s final comment: “a great team more than pays for itself over the long run, and the result is a company that will be proud to run. Forecasting aids in this growth process, and, if applied well, can launch a small business to success.”
Raj Sheth is the co-founder of Recruiterbox.. For more, visit www.recruiterbox.com.