Why thinking of your employees costs as a sunk cost is costing you more than you think.When a new financial year arrives, for many small business owners, the ghosts from A Christmas Carol seem to live on in relation to your employees. As you finalised your EOFY reporting for the past year, like most small business owners, you probably saw between 35 and 50% of your total costs being associated with employees. And that's if it has been a year free of problems! If any of you have had hassles with staff making allegations (proven or not) or had disputes when someone has left, you will also have legal costs. And these will be aligned with the more usual costs of wages, superannuation, insurances, payroll tax and associated on-costs. It’s no wonder that many business owners are asking themselves: "Is it worth having staff?" The answer is an emphatic YES! If you want your business to grow, then employees, rather than contractors, will be an essential ingredient for success. You may need to review the financials; and also reconsider how you look at this significant employees costs line.
Let's consider this familiar scenario:
Of course I’m not saying that people are the same as equipment; a machine usually has fewer inputs and factors that affect its performance than staff do! Let’s face it: what happens outside the workplace affects everyone at work (including you) at times. A fight with a spouse. An injury incurred while playing sport... The point to note is this:As you'll agree, we tend to view money spent on equipment as an investment; so we look after it to maximise the positive return on that investment. We also tend to view money spent on staff as a cost. A sunk cost. A compulsory expense with limited potential for return. We don't have to, and should not, think this way about employees costs.
Adding a new employee to your business is even more complicated than adding a new piece of equipment! And it has a lot more subtle impact and “ripple effect” than often anticipated.Investing in new technology and new equipment is a decision that you rarely take alone. Consider hiring and managing your staff in the same way and your business can only benefit.Feel free to contact me to discuss smart ways of optimising your investment in your employees costs in your business.