How do I hire people that I need but feel I can’t afford?

The key here is to focus on hiring when the wage expense of said employee can be matched with revenue coming into the business.

A misconception entrepreneurs often have is thinking the cost of a new hire is a lump sum. When you consider hiring a $70,000 employee, it feels like a right-now expense, when in reality it should be looked at as a $6,000 a month expense. Big picture, you should budget that cost as a three month expense – which is the amount of time you should be able to figure out if someone is the right fit for the role, and better understand the revenue offsets that employee is producing. 

Hiring needs to be a return on investment, period. In almost every case, if you hire good people there’s a much smaller investment than $6K/month or $70K/year because that team member will pay for themselves sooner than you think. As such, you need to marry the expense of hiring to a revenue source or identify operational efficiencies that create more cash flow.

In the event that you have to hire multiple people at one time (to possibly fill production requirements today, for a contractual revenue source that will not become available for a few months) consider using your bank.

Outside of organic financing (financing off of revenues), there are a couple of options. First, don’t be afraid to work with your bank for your banking needs! Entrepreneurs often make the mistake of under-banking themselves early-on, or not getting the proper lines/term loans out of the gate. Don’t miss out!   

Consider getting an SBA loan. The type of loan will be largely dependent on your industry, the amount, and your credit quality. Borrowing in a lump sum allows you to do a term loan at a much lower interest rate. The difference here is that in a term loan you get a lump sum of cash, usually at a lower interest rate and you get all that money up front with a defined payment where as a line of credit the line of payment moves with how much you have on the line and that changes month to month/quarter to quarter. Consider looking into both options.

Second, you could potentially work with a vendor to get a line of credit.

You can get a term loan and a line of credit for this stage in business by working with your bank. You can then secure a bank loan while potentially getting a working line of credit with your vendors as well. Long story short, you have to look at the organic pieces (financing out of cash flow) to make hiring decisions based on your needs, but you have to look at the banks as well.

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Entrepreneurs who asked this question also wanted to learn about:

Should I take on investors?

At this stage in your business the answer, generally, is no.

Think about it – a lot of the times when you’re taking on investors you are giving away a large portion of your business, while your path to get a return on that investment is very unclear. So often people spend so much time getting the investor, they’re getting distracted from building or growing the business.

But before you take that answer whole-heartedly, you first need to clearly define and consider what you need the cash for over the next 3-5 years. Entrepreneurs are notorious for under-capitalizing in terms of amount and timing.  

Consider this:

  • Longevity. Build your business model around not taking investors. Think of your business in terms of the next five years, keeping it forever, not just as a business that you’re going to exit.

  • Experience. Investors typically haven’t had the same experience as entrepreneurs. Some investors think about a business in terms of the academic application of business principles and practices instead of the actual mechanics of working in a growing business every day.

  • Costs. You’re often sacrificing costs (in terms of time, energy, and dollars) to acquire and maintain investors. Because investors want to see the return on investment, they often distract you from focusing on your business to instead focus on pleasing them. – Not to mention those investor/business owner relationships often end in strained at best.  

It’s often better to bootstrap your way through your growth, and utilize unsecured or secured lines of credit.  

Don’t settle for content that isn’t customized to your specific situation. Enter your email address below to have a deeper conversation with a Gerber team member about the appropraite approach to tackle investors. 

 

Can I make the path clear between accepting investor dollars and getting a return on that investment?

The answer is yes. You can make the path clear, with discipline.

You have to fully understand what the use of those outside investor funds. – How are those funds going to return new dollars? Is that path clearly defined or is it esoteric?

So many emerging businesses go out of business because they have no defined path for use of investor or bank funds. So often when an entrepreneur gets the investment dollars they get sloppy and use those dollars for other things. You’re almost always better off growing organically in the beginning to a critical mass until you have an understanding of using $1million to then take those dollars and receive a clear return.  

There isn’t a one-size fits all solution when it comes to your problems as an entrepreneur. Enter your email address below so a Gerber team member can make sure you’re getting the appropriate information for your situation.

 

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