Despite the pandemic, the IRS received more than 7 million requests for new employer identification numbers between January 2020 and June 2021, according to data from the U.S. Census Bureau.
As those businesses grow, many will reach an important milestone: hiring their first employees. Here are six things business owners should do first.
1. Make sure you need help
First, look for signs that your business can’t move forward without assistance.
If you’re “personally at capacity” and receiving more orders than you can handle, it may be time to hire someone, says Phelan Spence, a services and financial analysis associate at JumpStart, a Cleveland-based nonprofit that works with entrepreneurs.
Hiring may also be on the horizon for business owners who are missing deadlines, fielding customer complaints or thinking about taking on a big project.
Also see: Struggling small businesses are flocking to crowdfunding to raise capital
2. Know your numbers
Before hiring full- or part-time employees, your cash flow should be steady enough to support regular paychecks.
Business owners need to plan for expenses beyond wages, including Social Security, Medicare and payroll taxes, and, in many states, workers’ compensation. Benefits like health insurance add additional costs.
At the same time, bringing in a new employee can help you generate more revenue by expanding your capacity.
Spence says metrics like average monthly sales and average revenue per sale can help you understand how hiring someone will affect your finances and when it’s time to take that step.
“ (Hiring is) not necessarily tied to a date — it’s really tied to hitting that number of customers or number of projects or products or services,” Spence says.
Also read: How to get grants for your small business
3. Find professional support
Outside experts can help you navigate the hiring process. That team might include an attorney, bookkeeper, accountant and HR consultant.
“Make sure that you get the advice of a professional to kind of lead you along the way,” says Angel Washington, owner of Cleveland-based medical billing and coding business Consult 2 Code. “You just want to make sure you do everything right from the beginning so you don’t have to go back and fix things.”
Expert advice can help you stay compliant with employment law, like understanding when you can hire independent contractors and when you need employees, and making sure new hires fill out the necessary tax forms.
4. Set up payroll and accounting systems
When a business owner hires a new employee, they need to gather certain documents for tax and legal reasons. And when they pay that employee, they need to withhold money for tax and insurance payments.
“When you’re at this stage, it is really important to start thinking about your systems and invest a little bit of time and energy in your…
Read More: How to hire your first employee