When you’re launching a startup or growing a small business, building your team can be both exciting and nerve-wracking. On one hand, you’re bringing on people who can help you turn your vision into reality. On the other hand, you must figure out how to fit salaries, taxes, and benefits into a budget that probably isn’t massive yet. So, things to know about how to budget for early employees become crucial to your company’s success – or survival.
1. Understand Your Overall Financial Situation
Before adding anyone to payroll, you need a clear grasp of your company’s current finances. That means having:
- Projected Revenue: You should know roughly how much money you’ll make in the next few months or year. Even if it’s an estimate, it should be based on logical assumptions – like market size, pricing strategy, or early customer feedback.
- Operating Costs: List out everything you’re already spending money on – like office rent, software tools, and marketing. These expenses will still exist once you hire people, so you want to see how salaries add up on top of them.
- Cash Flow Forecast: This is about timing. Even if you expect to earn $50,000 a month, when does that money actually arrive in your bank account? If you pay your employees before your customers pay you, you might need extra cash on hand to cover the gap.
Pro Tip: If your revenue is less predictable – maybe you’re a seasonal business – plan for a cushion to manage any shortfalls.
2. Decide Which Roles You Truly Need
It’s easy to dream about hiring a full team: a marketing guru, a finance expert, an app developer, and more. But in early stages, you should focus on roles that give you the biggest return on investment. Ask yourself:
- What can’t we afford to be without right now? For a tech startup, maybe it’s a software engineer. For a consulting firm, perhaps it’s a project manager.
- Are there tasks draining my own time? If you’re spending half your day on bookkeeping or HR tasks that someone else could handle, maybe those are the roles to fill first.
- Could a contractor fill this gap for now? Sometimes you don’t need a full-time hire. A freelancer or agency might be more cost-effective until you have consistent workload for a full-timer.
By narrowing your hires to the most critical roles, you’ll use your limited budget more efficiently.
3. Research Salary Benchmarks
Once you identify the roles you need, the next question is: “How much should I pay them?” Salary ranges can vary widely based on location, industry, and experience. To get a ballpark:
- Use Online Tools: Websites like Glassdoor or Salary.com let you search job titles in your region to see approximate pay.
- Ask Peers in Your Network: If you know other founders or business owners, they might share what they pay for similar roles.
- Factor in Experience Level: An entry-level developer may cost significantly less than someone with 10+ years of specialized experience.
- Budget for Growth: If you’re offering a starting salary on the low end, plan how you might raise it once your revenue increases. That can help retain good employees in the long run.
4. Account for Taxes and Payroll Expenses
Salary is just one piece of the total cost of an employee. Depending on your state and country, you’ll have to pay payroll taxes, unemployment insurance, and possibly other contributions. These might include:
- Employer Social Security and Medicare Taxes (in the U.S.)
- Unemployment Insurance
- Workers’ Compensation
Some experts suggest adding around 15–20% on top of base salary to cover these extra costs, but check local rules to be sure of your numbers.
5. Budget for Benefits
While not every small business offers a full benefits package, certain benefits can help you attract and retain top talent. These might include:
- Health Insurance: Even a basic plan can make a difference in how candidates view your company.
- Retirement Plans (401(k) in the U.S.): If you can afford to match contributions, it’s a huge perk.
- Paid Time Off: Setting a clear policy for vacation and sick days helps people plan for work-life balance.
- Wellness Stipends: Some companies offer small allowances for gym memberships or mental health resources.
If you can’t offer all of these right away, think about providing them in phases as you grow. Or get creative with flexible schedules, remote work options, or professional development budgets as alternative perks.
6. Plan for Equipment and Tools
Your employees will need more than just a paycheck. They may require:
- Office Space or Home Office Support: Desks, chairs, or even monthly stipends for remote internet if they work from home.
- Hardware and Software: Laptops, specific programs, or subscriptions to essential tools.
The cost for these resources can add up, especially if you’re hiring multiple team members at once. Putting these details in your budget from the start avoids last-minute surprises.
7. Don’t Forget About Onboarding and Training
New hires aren’t fully functional on day one. They need time to learn processes, get up to speed with your product or service, and adapt to your work culture. This onboarding phase can impact:
- Productivity: You might see a dip as people ramp up.
- Time from Existing Staff: Current team members may train or mentor new hires, which can briefly slow their own tasks.
- Training Costs: If you need specialized coaching or courses, factor that into your budget.
By anticipating these onboarding expenses, you’ll have a more accurate idea of your short-term financial needs.
8. Create a Buffer for Surprises
Even the best plan can’t predict every scenario. A client might delay a payment, a key employee could resign, or your product launch might be pushed back. Having a small financial cushion – separate from your main operating budget – can help you weather these unexpected events without panicking or laying off staff.
Rule of Thumb: Aim for at least three months of operational expenses on hand if possible. If that feels too steep, start with one month and build from there.
9. Think About Equity and Incentives
Many early-stage companies offer stock options or equity stakes instead of hefty salaries. This approach can attract people who believe in your mission and want a piece of the company’s success. Still, equity isn’t free. You must:
- Define Vesting Schedules: Typically, shares vest over time, encouraging employees to stick around.
- Set Clear Terms: Make sure both you and your new hires understand ownership percentages, potential dilution, and exit strategies.
- Consult a Professional: Equity can get complicated. A legal or financial advisor can help you structure deals that are fair and compliant with regulations.
10. Review and Adjust Regularly
Finally, budgeting for early employees isn’t something you do once and forget about. As your business evolves – bringing new clients or shifting strategy – your staffing needs and financial resources will change too. Set up monthly or quarterly reviews of your budget, comparing actual costs against what you planned. If you’re overspending, identify areas to cut back or see if more revenue is on its way. If you’re under budget, maybe you can afford another hire or more generous benefits.
Pro Tip: Keep open communication with your team. If a major pivot is coming, let them know how it affects hiring plans or budgets. Transparency can build trust, especially in small, tight-knit companies.
Budgeting for early employees can be a balancing act – between offering competitive salaries, covering overhead costs, and maintaining enough cash flow to keep operations stable. By focusing on things to know about how to budget for early employees, such as researching accurate salary ranges, planning for benefits, and building a cushion for surprises, you’ll set up a foundation that supports your new hires and fosters growth. Remember that your budget will likely need tweaks and updates as you learn what works best for your business. Stay flexible, keep communication open, and be ready to adapt. With a well-thought-out plan, you can bring on the talent you need to turn your vision into reality.