Growing Pains.

HIRE THE RIGHT EMPLOYEES TO TAKE YOUR FIRM TO THE NEXT LEVEL

BEGINNING WITH OUR JANUARY 2000 ISSUE, THE BUSINESS Management series has explored the key strategies and issues involved in profitably maintaining and growing self-employed businesses. Part 1 provided tips for making the transition from employee to entrepreneur, and outlined four top business sectors for the self-employed. Part 2 offered advice on effectively dealing with financial issues such as bookkeeping, payroll and insurance. Part 3 delved into the strategic planning (time and project management) needed to develop and operate an effective and profitable workplace. In this, the fourth and final installment, we show business owners how to determine the optimal time to expand a one-person operation into a company with employees.

When Cheryl A. Cwiklinski, CEO of Comprehensive Computerized Business Services Inc. (CCB) in Chicago and Schaumburg, Illinois, started her professional staffing company in 1982, she worked alone for 18 months before taking on a staff.

"I outgrew that initial office three times before I ventured out and hired my first employee," says Cwildinski. "I got to the point where I literally could not do it alone anymore."

Cwildinski started CCB as a private computer-training facility, and as she gained more clients, she needed more space.

At that time, Cwiklinski was one of the more than 10 million Americans who had made the decision to sign their own paychecks. When she went out on her own, leaving a well-paying job at Xerox Corp., she realized two key things: she had a built-in client base in former Xerox customers and the knowledge that she could provide services her former employer did not.

At the time, her company offered word processing and personal computer training. CCB now offers full-service personnel placement (computer programmers, and administrative, sales and marketing support personnel), and on-site diversity and technical training. Cwiklinski's company, which now employs 125 people, grossed close to $10 million last year.

During the firm's early days, Cwiklinski tackled several challenges. In an effort to build her company, she found herself working day and night, six days per week, training all of her clients herself. She also managed the day-to-day operations of her company.

At the time, Cwiklinski worked in a small, spartan office space. She was not unlike the thousands of self-employed people who use their living rooms, and even their kitchen tables, to conduct business. They wear all the hats needed to keep their companies afloat. For many, though, the time eventually arrives when they must hand a few of those hats over to someone else.

Before taking the plunge and hiring employees, there are several factors to take into consideration. "What people must ask themselves," says Bennie L. Thayer, president and CEO of the National Association for the Self-Employed in Washington, D.C., "is whether or not they can truly handle the business alone. They need to assess if they've reached a point, in terms of the growth of the business, where they need to bring on additional employees."

Assessing the current state and future possibilities of a business can be difficult and confusing. Determining ways to build your client base and increase profits are key components of that evaluation. In most instances, freeing yourself of several responsibilities by hiring employees is a major step toward achieving those goals. Once you've decided it's time to bring a staff on board, you'll need to educate yourself about employment laws, finding the best employees and determining salaries before you can make the transition from being a one-man (or woman) operation to an entity with its own staff.

MAKING THE TRANSITION

It's settled. You've decided to take your business to the next level by hiring employees. But how do you do it?

Harriet Diamond, president of Diamond Associates, a training and development company in Westfield, New Jersey, says self-employed business owners should look at hiring employees as serving a twofold purpose. The first is to increase profits. The second is to free yourself up to grow the business. She stresses that many times new business owners need the extra assistance but become overly concerned that they don't have the cash flow or financial resources to hire people. As a result, they compromise the growth and professionalism of their business.

"The most important thing entrepreneurs should ask themselves is can they afford not to take on employees," she says. "They have to ask themselves what clients are they losing because they're overwhelmed and what clients aren't getting quality service. Would these problems be remedied by adding employees? They should look at expanding their businesses and hiring as an investment and, if done right, the yield is going to be high."

Kenton Clarke, president of Computer Consultant Associates, made a sound investment when he expanded his Southport, Connecticut, information technology firm, which netted $25 million in 1999, at a slow and steady pace. Clarke worked out of his home for 10 years, but soon saw the need to grow his company.

"You're limited in how much further you can expand working out of the house," says Clarke, who up until that point had operated and built his company with the help of outside contracted computer consultants. "I was running a $3 million business out of my home."

Some of Clarke's clients at the time included Philip Morris, United Technologies, Pepsi-Cola, IBM and Kraft Foods. After realizing he needed an administrative person, Clarke hired an in-house assistant responsible for accounting and recruiting new business by phone. "That freed me up to spend more time [developing] more accounts," he says.

In addition to assessing the potential benefits of hiring employees, experts suggest seeking counseling for such matters as time and office management, securing loans, and legal and accounting assistance. The reality is that many self-employed people can't afford the extra expense that comes with acquiring professional help. Thus, as many entrepreneurs will confess, in the initial stages of their business, they tackled most of these areas on their own.

"In the beginning, I didn't get legal help," admits Cwiklinski. "I would advise it now. I felt that attorneys were an expense that I did not want to take on. Legal advice, financial advice, those are protections, and one should not view them as an expense."

Cwiklinski also says that in the beginning, she wasn't knowledgeable about what the law requires of employers. She encourages entrepreneurs to learn about benefits, worker's compensation and vacation time. As an employer, you have rights too, and you'll need to know what those are. If you are in violation of employment laws, you could be fined by the Department of Labor, which could ruin your business. And don't forget about the IRS. It has its own requirements. For counseling and assistance, new business owners can call the Small Business Administration (SBA) (800-8-ASK-SBA or www.sba.gov), which has Small Business Development Centers across the country where this information is readily available.

According to Diamond, an accountant is also one of the most important professionals needed by any business owner because "you must have someone to help you work through the money management."

MONEY MATTERS

Show me the money! This sentiment is sometimes echoed by employers seeking a return on their investment in an employee. But, more likely than not, you'll hear those words from potential employees looking to secure a paycheck. Salaries can be a bone of contention in any segment of the workforce. Small businesses certainly aren't exempt. Experts suggest paying what the position is worth. Surf the Net (see the American Compensation Association's Website at www.acaonline, org, 877-951-9191, or visit www.bls.gov, the U.S. Bureau of Labor Statistics' site) and consult with headhunters and other professionals in your field to determine current salaries for administrative and field-specific positions.

Clarke offers further advice. "When you're hiring someone, they pretty much have an expectation of how much they want to get paid," he says. "You have to balance that against what you know of the open marketplace. Is it too high or too low?" Clarke had to be especially aware of this since he began contracting workers early on.

Diamond says it's important to know the strings attached to contracting outside help. "A subcontractor has to be someone who really has his or her own business, is filing a 1040 Schedule C and is contracted for work by several people. If that's not the case, then that person might be considered your employee" (see "Making Sense of Money Matters," February 2000).

Thayer warns that entrepreneurs should make themselves aware of all payroll tax contributions that must be made to Social Security, Medicare and unemployment. When you hire employees, you will be responsible for withholding taxes from each worker's pay and you will be obligated to pay certain taxes on the compensation you pay your employees. Currently, the Social Security tax rate is 6.2% for wages up to $68,400. The Medicare tax rate is 1.45% and has no dollar limit. You can obtain the IRS employer's tax guide, which includes easy-to-use tables that indicate the amount you need to collect, by calling 800-829-3676 or visiting your local office for the rates that apply to your business.

Thayer says business owners should consider the expenses that come with hiring employees. "In many instances," he says, "you're going to have to buy office furniture, expand phone systems and purchase other equipment."

Then there's payroll: who will handle it and how? Deryl McKissack Greene, president and CEO of McKissack & McKissack (Greene's family also owns a Nashville, Tennessee, architectural firm of the same name), an architectural, engineering and management company in Washington, D.C., handled payroll herself for the first 18 months her business was in operation.

"In the beginning, I became a quick expert at payroll," says Greene, who later hired an accountant and eventually a payroll systems company. "I didn't want to become liable for any miscalculations in payroll taxes."

Leaving a $100,000 salary at Howard University to start her own company wasn't easy for Greene. In McKissack & McKissack's infancy, there were a few years, she says, when, after paying salaries and expenses, she took home a salary of just $4,000 to $7,000 a year. Greene had used $1,000 to bankroll her business.

"It was a grueling experience," she says. "But I knew what I was going into." Greene's company now handles more than $2 billion in business.

Greene also helped keep her company afloat by following a good rule of thumb. She did, and continues, to track the company's profit margin and monitor how much work it does each year. She also maintains a year-long projection of expected work. By doing this, she can assess how many employees she will need for the coming year.

With clients often taking longer to pay their bills than most entrepreneurs would like, many new business owners find themselves taking steps to safeguard against missing payroll. "I got a line of credit for $25,000 my second year, which helped me a lot in terms of ensuring that my six employees were paid," says Greene. "But I can say that I have never missed a payroll the entire time that I've been in business. And that's also because I didn't spend any money unnecessarily."

THE SEARCH

The process of hiring employees and deciding what shoes they will fill can prove daunting. Much more should be expected of candidates than just getting to work on time and completing tasks, however skillfully.

The interview process lays the groundwork Thayer suggests asking as much about the interviewee's work history as possible. He also suggests preparing a job description and outlining the type of personality you'd like to hire.

"The interview questions should be the same for every interviewee so that you can measure them using the same barometer," he says. For example, you might ask what their most significant accomplishments have been since joining their present firm and where they see themselves over the next five years, according to human resources experts. (For a list of questions that are illegal to ask, see "None of Their Business," Powerplay, September 1999).

A common mistake new business owners make is rushing to hire the nearest person, such as a relative or friend. If you fall into this trap, you may find yourself with an unqualified employee or face complaints of nepotism. Diamond also notes that it's important not to hire someone before you've determined what duties you need them to perform. What's helpful in this area is to make a list of job duties that only you can complete, then delegate other responsibilities to employees. Create job descriptions that contain the education and work experience you desire, the duties and responsibilities of the position and the person to whom the candidate reports.

Greene admits that in the early stages of her business, she hired employees who didn't fit into her company's culture and who didn't have the skills they needed. "But soon after," she says, "I started hiring the best in the industry. What you have to do is look at where you want to be in five years and say I want those types of clients. I want that type of staff."

To minimize the cost of employees, consider contacting your local college or university to hire students as interns for credit and/or an hourly wage. It is also possible that if given the option of obtaining stock in your company, some employees may be willing to work for a lower salary.

SHARING YOUR SOUL

A sentiment among many entrepreneurs is that no one is as dedicated to the growth of their company as they are. Cwiklinski insists that entrepreneurs shouldn't expect their employees to have the same vision, maintain the same work ethic or put in the same kinds of hours.

"Of course you are sharing your vision," she says, "but one must understand that a person is either an entrepreneur or an employee. Entrepreneurs take the risks and employees are looking for security."

Diamond notes that being open to the ideas of others will help your company grow more and can make for a happier work environment. She believes that this kind of openness is an employee motivator that can help make employees feel they're playing a bigger role in the overall success of the business. She advises talking to employees about the role they see themselves playing in the growth of the company. "It's difficult to work well and build your company if someone is chipping away at that," Diamond says. "Realize that you can't do everything."

Greene agrees. "It was tough giving up some of my work in the beginning, but it's not now," she says. It's helpful, she explains, to realize that you can't do it all and to bring on individuals who are qualified and will give their best efforts to the company. "It's good to have people who understand the company's mission, people who I feel are good and even better than me at what I ask them to do."

Expanding one's business in an attempt to join the ranks of the thousands of successful small businesses around the country is very tempting. But rushing to succeed can sometimes be a big mistake. Many entrepreneurs believe they can build their businesses by leaps and bounds.

According to Thayer, companies should be built gradually. "Many people make the mistake of doing it too fast and, as a result, hurt the business."

In the end, revenues that should be generated by having additional employees don't come in fast enough to offset the new expense. "You have to look at why you are taking on extra employees," says Diamond. "Is it that you have more business than you can handle? If that's the case, then those people am going to help you increase your income and build your company."

Most entrepreneurs have a bug that makes them feel they're going to be the masters of their own fate. With the right timing, preparation and plan, you can certainly succeed and grow your operation to include others who share your passion and vision, and who can help you build a profitable, customer, driven firm that creates wealth and opportunities.