Employing staff in a Home-based Business

Michael Taplin shows how recruiting staff can increase the value of your business.

Why employ staff in a home-based-business?
In my last article I discussed managing employment risks. If employing staff is risky why should you consider it?
There are at least three good reasons to employ staff in a HBB.
• Cope with growth, and increasing demand, from customers and clients.
• Increase your security.
• Improve the value of your business and its appeal to buyers.
I will discuss each of these separately in more depth, focusing on the management issues they present.
Cope with growth and increasing demand from customers and clients.
There is one certainty in business; if you don’t supply the demand, someone else will. Once your business reaches the limit of your personal capacity, you have a number of options, but whichever you choose you are increasing your dependency on other people.
A healthy business grows and develops or it dies, slowly, perhaps imperceptibly, but inevitably as it becomes irrelevant to the changing needs of its customers. You may be very inventive, responsive to shifting demands but eventually everyone becomes locked into their present business model. Failure to recognize change is one of the hidden reasons for failure of business, large or small.
If you introduce the right person into your team that person will contribute more than just work, if you encourage them. Team members are a great source of innovation if they are encouraged to contribute, and two minds are better than one at spotting opportunities. Many business opportunities are missed because the founder is just too busy to grab them as they present. Getting a team member to act on them is a source of growth, but first you have to have a team member.
Ultimately, your growth prospects are dependent on your willingness to delegate to others, and of course, having competent others to delegate to. Let us be quite frank about what inhibits this; it’s an ego thing. Few of us are confident about what we think is losing control, so we try to do everything ourselves. We become our own ball and chain.
In 1988 Ichak Adizes examined the “founders trap” in his book 'Corporate Lifecycles: How Organizations Grow and Die and What to Do About It'. What I learned from him and in the 17 years since, is that his lessons apply to small businesses as well. You don’t need to read the book but if you are motivated you will find it interesting. All you need to do is to recognize the problem, and do something about it. So the message is recruit, delegate and grow.
Yes; it is risky but you can manage the risk, and the returns are good. (See Homebizbuzz 30 Jan 06)
Increase your security.
You have invested much time, effort and cold hard cash into developing your business to the point where is has become successful and is generating a cash flow on which you increasingly rely.
What happens if you are unable to run your business for any reason? Who will do the work? Who provides your back-up?
You probably think you are unable to afford income protection insurance, because you have heard friends talk about problems collecting on the policy. The cost of worthwhile cover is a concern to you.
Are you relying on friends or relatives to take over from you in an emergency? Most of us do to some extent, but can they really do what you need, particularly if your business is dependent on expertise that takes time to learn. To ensure that they can, you need to invest real time in ensuring that they are up-to speed on a number of matters.
If you are relying on friends or relatives, will they give your business the right priority when their personal affairs create a conflict? Will you be able to supervise them effectively, and correct performance issues without jeopardizing personal relationships?
Perhaps you should be considering finding a contract or part-time person to deal with both day-to-day over-load and to take over if you are incapacitated. This person should become a permanent but not necessarily a full time member of your team. You must be able to trust them with confidential aspects of your business, and rely on them in an emergency. You will be surprised how many good and talented people are out there and available to you on suitable conditions.
This checklist may help you prepare for a personal emergency.
1. Is your business system well documented? Can anyone pick up your files and operating manuals and deal with customers and orders? Are your standard processes and procedures written down.
Documentation is a bore but it is the only way to emergency-proof your income.
2. Are your files up-to-date and accessible even if you are not in a position to show or explain how to find them?
3. Do you have back ups of important data, preferably stored securely off site? Are your important on-site backups stored in a fire-proof safe?
Small home safes are relatively cheap nowadays, and should have at least a 4 hour fire rating. I have had a fireproof safe for 15 years and it cost less than $200.
4. Has your back-up person been fully trained and kept up to date on the way your system works?
5. If your business is computer-based does your employee have remote access to an up-to-date operating version and files. Can they take over the work at short notice.
6. Does your agreement (employment or contract) provide for this contingency? Do you pay a premium rate for managing the business or have you considered providing an incentive? Does it cover confidentiality and poaching issues?
7. What provision have you made for banking income or paying bills? Have you given access to bank accounts (passwords, signatory authority). I have found that well selected employees are trustworthy, and deal with your money as carefully as if it was their own.
Improve the value of your business and its appeal to buyers.
Everyone wants a growing business. A business that is totally dependent on the continuing involvement of its founder is not worth much to a buyer. If you want to get the best price you need to set up your business so that it will operate profitably without you.
A business is worth what a buyer will pay so to obtain the best price you need to satisfy most if not all of these criteria:
1. Steady growth in sales and improving margins, backed by three years’ accounts.
Buyers need to be confident that their investment can be made to grow. If you have stripped out the growth capability to maximize your short-term returns, buyers will be reluctant to pay a premium. Most buyers want to believe that they can run it better than you can, so let them see the unrealized potential.
2. A good level of repeat business and good recruitment rates of new customers.
A smart buyer will look for evidence that customers come back, time and time again, because these are the most profitable customers. It is also the best assurance of quality. Do you have good sales records that show the value of your best repeat customers?
3. Competent, loyal staff and a good manager.
A business that will earn money without the day-to-day involvement of the owner is obviously worth more than one that requires constant attention.
4. A return on investment better than alternative investments.
Of course! A home-based business has low overheads and can earn a very high return, as long as you don’t over-invest in stock or become a bank for your customers.
5. Room for development and growth.
You have probably been successful because you have identified an expanding market niche. Feed it and don’t milk it dry if you want the best value for your business.
The first three of these criteria require you to invest in staff and build their loyalty to the business and its customers.
Considering all these factors you may conclude that on balance, growing your business by taking on staff is a good business strategy.
Sources of further advice
Check www.businessmentor.org.nz to see if you are eligible for a volunteer business mentor. A mentor will help you with your decision process.
For useful guidance on various aspects of recruiting check www.jobsinrodney.co.nz, particularly the “Around the Traps” newsletters and employer services, even if your business is not in Rodney district.
This article was contributed by Michael Taplin of Corporate Dynamics Ltd, who is a strategy consultant and volunteer business mentor for Business Mentor NZ.