In creative industries, revenues aren’t guaranteed. You often can’t count on a certain amount of income a month, or maybe you’re left relying on large deposits hitting your accounts just a couple times a year. With all this uncertainty, how can you make smart hiring decisions to get all the help you need?
Through a combination of long-term thinking, flexible working conditions, and a moderate approach, you can feel confident about your hiring decisions even in the most uncertain times.
Think in the long-term
In times of uncertainty, it’s natural to focus on just getting through the month. Or the week. Or even the day.
But when it comes to growing your business, being consumed with the short-term could be impacting your long-term. In other words, saving pennies today could cost you millions tomorrow. No, saving in general isn’t wrong… hear us out on this.
Instead of focusing on whether or not you have the cash flow this month to make a hiring decision, consider your coming year overall. What’s the total income you’re expecting to generate? And how much of that can be allocated to building your team? Depending on your industry, a good rule of thumb is putting somewhere between 30% and 50% of your income into hiring.
Even if there are months with slower cash flow, you can prepare for this with cash flow forecasting. This will help you identify when your accounts may dip and find strategic solutions to combat that, like short term borrowing.
Offer flexibility for flexibility
In the business world, flexibility is a two-way street: when you offer more of it to the folks working for you, they’ll offer more of it to you in return.
For example, you have someone you really want to work with but, based on your finances, you can’t commit to full-time employment. You can only bring them on as a contractor. You’re asking them for a bit of flexibility by not offering W2 employment, so in return you might offer them remote working and flexible hours so they feel well accommodated.
It’s important to note that simply deciding you’re bringing someone on as a contractor instead of a full-time employee isn’t enough. The nature of your work relationship has to fit the definition of a contractor by the IRS in order to not be hit by unexpected employment taxes. If you have more questions about this, get in touch.
Goldilocks had it right all those years ago: she didn’t want anything too hot or too cold, too small or too big, but something just right. She wanted moderation, and that helped her have the best experience.
You can plan your hiring budget with the same approach: avoid the extremes and find moderation instead. Here’s an example of what that might look like:
Mx. Creative’s business made 400k in 2020. In 2021, they made 600k, a 50% growth in profit. Now, at the start of 2022, Mx. Creative is wondering how much money they should base their hiring decisions on. They have three options:
Count on the revenue you already have locked in: In Mx. Creative’s case, they have 375k of contracts that are already guaranteed for 2022. If they base their hiring decisions on the money they know for a fact will be flowing into their business, any extra money they make can be reallocated. The issue is, if they start earning beyond their locked-in contracts, Mx. Creative is left scrambling trying to keep up with their workload.
Count on the revenue you made last year: Mx. Creative brought in 600k last year. Now, they’re confident they can bring in the same amount this year, even if they don’t yet know exactly where some of that revenue will come from. They’ll have at least as much help to maintain the previous year’s profit and, if they start seeing growth beyond the previous year’s scale, they can make more hires to accommodate that.
Count on the same growth pattern as last year: Mx. Creative had a 50% boost in revenue from 2020 to 2021. Following that growth pattern, they’ll bring in 900k in 2022. In stable times, it’s reasonable to expect you’ll maintain a growth pattern. But if the past two years have taught us anything, stability is not a guarantee. This is the most aggressive estimate Mx. Creative can base their hiring on, and has the highest risk attached.
The moderate option in this case is basing Mx. Creative’s hiring decisions on last year’s revenue. It’s a safe balance between not selling yourself short and not overstretching yourself.
Whatever option you choose, do a quarterly forecast analysis so you can readjust your strategy based on actual data. That way, you can stay on your toes and handle any changes that come your way. For more strategic financial guidance and an accounting solution designed to help creatives build the business of their dreams, get in touch with Revel today.