You probably thought that starting your one-man business was hard but moving to the next level is often harder and brings new challenges. This is particularly true if you need to employ someone to help you.
Your current business
It is you doing the work. Your knowledge and ability is what counts. You will do a great job at a fair price and, as a result, get repeat and referral business. You are creating your reputation.
It is a truism among accountants that the owner of a business will generate at least 10% better sales than an employee. You are committed and will go that extra mile.
It’s your reputation
When you send someone else to do a job, it is your reputation on the line – not theirs. If they don’t do such a good job or don’t treat the customer correctly, the customer remembers you, not the individual. Letting the wrong person loose on your customers can result in less repeat business and fewer referrals and, worse, disputes over quality and price.
You may decide, wisely, that you will ensure that you supervise the work of the new employee until you are satisfied they are doing the work correctly and dealing with customers in the right way. Great idea, but you need to be aware that this probably results in more overall time being spent on a job, thereby reducing profitability.
Don’t underestimate the management time
Managing an employee takes time. You need to ensure they have plenty of work, you probably need to spend time supervising them, you will spend time training them in your methods and philosophy.
Do not underestimate the time this extra work will take, because it may prevent you from actually doing paid work.
We have seen situations where a one-man business thought that capacity (and income) could be doubled by taking on an extra, skilled, worker. Six months later they realised that capacity and sales had only increased by 20% – resulting in a much lower profit.
A lower profit is fine so long as it is part of a longer term plan to develop a business.
Other factors which affect profit
There are other things which can happen to reduce income into your pocket.
One of the most obvious is VAT if customers are mainly domestic. A one-man business might be profitable with sales below the VAT threshold (£85,000 per year). However, add an employee and increased sales could bring the business into the territory where, although sales increase, profit reduces.
We did an article on this VAT Trap some time ago and we are happy to explain to you in detail if this might affect you.
Expanding a business may mean increased costs such as additional working space, more equipment, training costs.
Depending on the nature of the business you may have cashflow issues where you might need to wait for payment for your invoices but have to pay for materials and wages immediately.
Planing & Support
There is no reason why you shouldn’t expand your business because this can be the best long-term solution – but don’t go into it blind – PLAN, PLAN, PLAN!
We are here to help support you if want to grow. Over the years, we have been able to help with many growth situations. We are independent and ask you the awkward questions. Give us a call for a, no obligation, chat and let us help you find the right path.
Telephone – 01509 816150
Email – email@example.com
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