Start with cash reserves. You need enough in the bank to cover at least three to six months of the new salary plus your existing expenses. Hiring isn’t just about affording this month’s paycheck. It’s about affording payroll when a slow month hits or a big client pays late.

Look at your monthly revenue over the past six to twelve months. Consistent revenue makes hiring less risky than revenue that swings wildly. If your best month is double your worst month, plan around the worst month when deciding what you can afford.

Check your profit margins before adding costs. There’s no point hiring if you’re already losing money or barely breaking even. You need enough gross profit to absorb the new expense and still leave something for yourself and reinvestment in the business.

Calculate the true cost of the employee. A $50,000 salary isn’t $50,000 in actual cost. Add employer payroll taxes around 7.65% for Social Security and Medicare. Add workers’ comp premiums, any benefits you’ll offer, equipment they’ll need, and the training period where they’re not yet productive. That $50,000 easily becomes $60,000 or more.

Review your accounts receivable aging. Slow-paying customers mean you could be profitable on paper but cash-strapped in reality. Hiring when your cash is tied up in unpaid invoices creates stress even if the business can technically afford it.

Consider what the hire will produce if the role generates revenue. If you’re turning away jobs because you’re at capacity, calculate how much additional work you could take on. Compare that to the total employment cost. If a technician generates $8,000 monthly and costs you $5,000 fully loaded, the math works. If the numbers are close, the risk is higher.

Look at your current labor costs as a percentage of revenue. Every industry has different benchmarks. Restaurants typically run 25-35% on labor. Service businesses vary widely. If you’re already at the high end for your industry, adding more labor might squeeze margins too thin.

The common mistake is hiring based on feeling busy rather than looking at actual numbers. Busy doesn’t always mean profitable. And profitable doesn’t always mean you have the cash to hire right now.

Before making this decision, make sure your books are accurate and current. You can’t evaluate these numbers if your financial records are three months behind or if your profit and loss statement doesn’t reflect reality. A Richmond bookkeeper can get your numbers current so you’re making decisions based on facts rather than guesses.