Hiring and capacity planning
A hire is the largest recurring commitment most owner-managed businesses make, and it is usually decided on a feeling that everyone is busy.
This is part of the fractional cfo half of a fractional CFO and controller engagement.
Quick answer: Capacity planning costs a hire fully — wage, employer CPP and EI, workers’ compensation, vacation, equipment and the lag before the person is productive — and tests it against the forecast to show when the business can carry it and what revenue has to appear for it to pay back.
The full cost of a hire
- The wage, which is the visible number and rarely the whole one.
- Employer CPP and EI, plus the second CPP contribution on earnings in the CPP2 band.
- Workers’ compensation premiums, set by industry classification rather than by role.
- Vacation and statutory holiday pay, which accrue from the first day in some provinces and some industries.
- Equipment, software and space.
- The ramp — the weeks or months before the person is producing at the level the plan assumes.
The ramp is the one businesses forget, and on a senior hire it is often the largest single component.
When the business can carry it
The question is not whether the hire is affordable in a good month. It is whether it is affordable in the quietest month of the year, because payroll does not fall with revenue.
That makes this a cash question before it is a profit question. Running the hire through a rolling cash forecast shows the month it becomes tight, which is usually earlier than expected and always better known in advance.
Employee or contractor
The other half of a hiring decision is what kind of hire it is, and that is not a free choice. The classification turns on control, tools, the ability to subcontract and the chance of profit or loss, and getting it wrong lands on the payer rather than the worker.
Subcontractor or employee sets out the factors, and it is worth settling before the arrangement starts rather than after a season of it.Who this is for, and who it is not
A good fit: a business considering its first hire, a step up in headcount, or replacing someone senior, especially where revenue is uneven across the year.
Not a fit: a business already carrying spare capacity, where the useful question is what the current team is spending its time on rather than how to add to it. We say so on the first call rather than quoting for work you do not need.
Common questions about hiring plans
How accurate can this be?+
Does this include the payroll setup?+
Can you model two options?+
We are already stretched. Is it too late to plan?+
Talk to a CPA about this
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