How to know when, and how much, you can afford

Hiring is one of the biggest financial decisions a small business owner can make. Whether it’s your first employee or your fifteenth, that moment of asking “Can I really afford this?” never stops feeling personal.

The truth is, getting it wrong can strain your cash flow, disrupt operations, and leave you feeling more stressed, not less. But with the right preparation, hiring can be a powerful step toward growth, freedom, and sustainability.

The financial prep: Can you afford to hire?

Before you start writing a job description or thinking about benefits, let’s talk numbers.

Here’s the general Profit First rule of thumb for operating expenses (which includes payroll):

Businesses earning up to $250K per year: spend no more than 30% on operating expenses
Between $250K to $500K: no more than 40%
Between $500K to $1M: no more than 50%
Over $1M: no more than 65%

So, if your business brings in $10,580 per month, your max operating expenses should be about $3,174. That includes everything: software, rent, subscriptions, and yes, employee wages.

From there, calculate what you can truly afford to pay.

And don’t stop at just hourly wage. Add 25 to 30% on top of that for hidden costs like:

Payroll taxes (Social Security, unemployment)
Administrative time or services
Benefits (if offered)
Tools, software, or equipment
Fuel, meals, uniforms, insurance (depending on your industry)

You don’t need a CFO to do this, just a good grasp of your numbers and a willingness to look honestly at what hiring will change.

Employee vs. contractor: What’s the real difference?

We often hear this: “Can’t I just pay them as a contractor instead?”

It’s tempting. Contractors can be less expensive in the short term. But classifying someone as a 1099 when they really function like a W-2 employee can get you into hot water with the IRS and state labor boards.

The difference comes down to control and consistency:

Do you dictate their schedule?
Are you providing their tools and equipment?
Are they expected to be part of your team long term?

If yes, they’re likely an employee. It’s worth checking with your accountant or payroll provider before you decide.

Culture, clarity, and long-term thinking

Being ready to hire isn’t just about money. It’s also about leadership.

Ask yourself:

Do I know our company values and non-negotiables?
What kind of behavior would I never tolerate?
What would make me let someone go, employee or client?
Do I have training, feedback systems, and performance review tools in place?
Can I define why I’m hiring: is it to free up my time, increase capacity, or grow revenue?

A good hire is about more than just qualifications. It’s about alignment — on culture, communication, and contribution.

Want to build a business that’s not just dependent on you?

If hiring is part of your growth strategy, it’s worth stepping back and looking at the bigger picture. In our August workshop, we’re exploring how to build a healthier, more valuable business — one that can run and thrive without being entirely built around you.

Join us on August 28 for “Is Your Business Built to Sell, or Just Built Around You?” and learn how to create a business that’s scalable, sustainable, and more freeing, even if selling isn’t your endgame.

Save your seat now