EntreLeadership - Making $4 Million but Nervous to Make My First Hire

Starting point is 00:00:05 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, Entry Leadership's head coach, John Falcons, answers a question from Mark, a business owner who wants to know when it's time to make his first hire, who that person should be, and what he can. realistically afford to pay them. Let's get to 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,

Starting point is 00:00:51 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 three and four million dollars. All right, well, it sounds like you've got a healthy business. 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.

Starting point is 00:01:27 If that first hire is supposed to be a project manager, the 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. All right, Mark, first let me say you're asking the right questions. Sounds like you've got a 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

Starting point is 00:02:13 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. 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

Starting point is 00:02:56 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. You don't want to just add overhead that isn't going to help increase things.

Starting point is 00:03:16 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.

Starting point is 00:03:45 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. 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.

Starting point is 00:04:18 If you need to pay them a tiny base salary just for, I don't know, for the benefits and the other things that they need, so be it. but I would make that salary as small as you possibly can and make the majority of their comp commission. It's going to do a few things. It's going to reduce the risk for you. And it's also going to put this person in the right mind space. And it's going to attract the right person

Starting point is 00:04:43 because you're going to get people that you're going to talk to about doing this role. And they're like, I don't want to do this. I don't want to be on commission. Some people are scared of that. And that's fine. But the right person is going to be attracted to that. And that's what you want.

Starting point is 00:04:56 You want somebody that looks at this as an opportunity and says, oh, you're going to give me a percentage of what we bring in? That sounds awesome. I'm going to go get some work to bring in so I can make more money. There are people like that, and that's how you want to set this person up. We'll get right back to our episode, but first, as your business grows, everything gets more complex. There was a time when we had too many disconnected systems and not enough visibility across the business. We wasted time chasing information instead of making decisions. That's why we got NetSuite.

Starting point is 00:05:30 NetSuite brings your financials, inventory, CRM, and more together in one place. More than 44,000 businesses run on NetSuite, including Ramsey Solutions. And now they're taking the next step with NetSuite Next, making it easier to put AI to work across your entire business. NetSuite Next automates routine work like following up on overdue accounts, and with NetSuite Next, AI is built into everything you do, so you can ask questions just like you're talking with a member of your team. You'll have the information you need to make decisions faster. That means less busy work and more time growing your business.

Starting point is 00:06:14 And right now you can try NetSuite Next for free. If your revenue is at least seven figures, go to NetSuite.A.I. Slash Ramsey. That's netsuite.coma slash Ramsey. Now, let's get back to the episode. If you do those three things, you make sure you're paying yourself a living wage, you make sure you make a hire that actually ROI's quickly, and then set that higher up properly in terms of their commission structure, I think, as long as you've got enough work, which it sounds like you do, you're making a good move. This all leads me to a question that I've got for you now, Mark, which is,

Starting point is 00:06:50 is what are you going to do with this time? If you give this new project manager a couple of the jobs, then that's gonna free you up some, or it should. And you've gotta ask yourself, what's the highest leverage set of activities that I can engage in to grow this business? To say it simply, we talk about working on the business and not just in the business.

Starting point is 00:07:11 So things like getting out ahead of the projects and building that pipeline, doing business development, meeting new people, those are the kind of things that are gonna grow, the business. Also, the back end stuff that you can be doing. What processes or procedures can you refine or make smoother, make them less labor intensive? All of that working on the business is where I would encourage you to focus. The thing is, we see this over and over again. You are just at the verge of graduating off of the treadmill into what we call the Pathfinder stage. You're getting

Starting point is 00:07:44 ready to be free of just owning a job and actually owning a business. So you've really really got to pay attention to making this hire really smart, delegating the things that need to be delegated and not the stuff only you can do, and managing your finances in a way that you still have margin to grow the business, to reinvest. And again, you got to make sure that you can pay yourself and this new team member. You do those things. You're going to be on your way to becoming a pathfinder and building the team to take your business to the next level. If you've got a business problem you need to help working through, go ahead and connect with one of our coaches. It's personalized one-on-one coaching wherever you're at with your business.

Starting point is 00:08:25 And we'll help you take your company to the next level. Schedule a free 30-minute consultation with our team by clicking a link in the description. Growing your business isn't about hiring as fast as possible. It's about making the right hire at the right time because hiring mistakes are expensive. So if you're thinking through this decision right now, go away. Watch our video on the first three hires every business owner should make. And if you enjoyed this episode, be sure to like, share, and subscribe for more real world leadership content. I'm your host Dave Ramsey and this is Entree Leadership.

EntreLeadership - Making $4 Million but Nervous to Make My First Hire

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