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When to Hire - The Secret from a Virtual Accountant

BY Eddy Hood In Outsourced Accounting Services On Jan 19, 2015 With 0 Comments

You need more help, but you're terrified to hire someone. What do you do? At this point in the game, most entrepreneurs either take the plunge blindly and hire, or they suck it up and take on the extra work themselves as their families watch them drown in agony. 

You're not like that! At least you won't be after watching this video.


The Virtual Accountant Guide to Hiring Smart

Step 1: Estimate Your Monthly Revenues

The first thing you need to do is estimate your monthly revenues. Come up with a good average here. Obviously the more historical data you have the better, but if you're just getting started make a conservative estimate.  

If you do have actual data, run those numbers and figure out your real revenue averages. Let's assume your business generates $100,000 a month in sales.

If your business doesn't generate consistent sales due to seasonality or some other factor, just do your best.  This exercise will still be very helpful.

Step 2: Take Out at least 10%

Now take at least 10% our of your estimated monthly revenue. In this case, that would be $10,000. This figure represents wealth building opportunities for you and your company. By taking it out first and sticking it in a savings account, you'll be able to fuel your company down the road. As a virtual accountant for entrepreneurs around the country, I try to teach our clients to make decisions without this cash in mind.  If you can learn to operate your company on 90% or better of your revenues, you'll become a lean and smart business. Companies that make decisions using all of their revenue get bloated and sink when the storm comes.

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Step 3: Take Out All Costs Except Labor

You should be at $90,000 in this example.  Now take out all of the costs your company incurs on a monthly basis except for your payroll.  Subtract marketing, supplies, materials, insurance, rent, etc.  Get everything in there.  Let's assume in this example that your company has $40,000 in costs every month. 

In all honesty, this is where most of the trouble in the formula starts.  As a virtual accountant company, we find that most businesses don't have a good system in place to track their costs. If your company has to guess on this stage, I would recommend taking a day off and focusing on nothing other than calculating the real cost of the business.

Step 4: Analyze Your Labor Budget

If you subtract the $40,000 in costs from the $90,000 you have to start with, this leaves you with a budget for labor of $50,000.  From this number, subtract all of your payroll costs, payroll taxes, and payments to yourself; after all, this is how much you have to spend on staffing. Let's assume that you spend $35,000 on all payroll related costs each month.

Step 5: Hire or Get More Efficient

If you subtract the $35,000 in wages from the $50,000 in labor budget, that means that you would have $15,000 left for new hires unless you decide to set more than 10% aside in step 2. Now that you know what you can spend on staff, look around and determine what you need to hire for.  Remember to never hire someone unless that position will improve the performance of your company.  


Never Hire in the Dark

I hope this article and video help you to get a strong grasp on your hiring practices.  I would recommend that you run this report at least once a month.  We run it daily at Ignite Spot just to make sure that we are in line with our hiring practices.  When we hire someone, we want to make sure we have the cash to not only pay for them, but also to make them as successful as possible. Our virtual accountant services offer this level of support.  If you get stuck, we're here to help.


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My name is Eddy Hood. I've coached over 500 businesses on how to become more profitable. I'm the Founder & CEO of Ignite Spot, and I have mad parallel parking skills.

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