Hiring another employee can help a growing business take on more customers, improve productivity, and reduce pressure on an existing team.

But growth comes with a cost.

Before adding another employee to your payroll, you need to know whether the business can comfortably absorb that cost without creating unnecessary pressure on cash flow or profitability.

A business may have strong sales and still not have enough financial capacity to support another employee. Likewise, a business with modest revenue may be able to afford additional staff if it has healthy margins, predictable cash flow, and sufficient reserves.

The key is to look beyond revenue and assess the full financial impact of the hire.

Start With Your Current Financial Position

Before considering another employee, review the current financial health of your business.

Look at:

• Revenue
• Gross profit
• Net profit
• Profit margin
• Monthly operating expenses
• Cash flow
• Cash reserves
• Outstanding customer invoices
• Existing debt
• Current payroll costs

This gives you a baseline for understanding how much financial capacity the business currently has.

If the business is already struggling to meet its existing commitments, adding another permanent cost may not solve the underlying problem.

Calculate the Full Cost of the New Employee

Salary is only one part of the cost of employing someone.

Your calculation should account for the total cost associated with the role.

Depending on the circumstances, this may include:

• Wages or salary
• Superannuation
• Leave-related costs
• Workers compensation insurance
• Payroll-related costs
• Recruitment fees
• Training
• Equipment
• Computer or technology costs
• Software
• Office space
• Uniforms or other work-related expenses
• Other employee benefits

For example, if you are considering an employee with a $90,000 salary, you shouldn’t automatically treat $90,000 as the cost of the hire.

The actual annual cost to the business can be higher.

This is why calculating the fully loaded employment cost is an important first step.

Can Your Cash Flow Support the Hire?

Profitability and cash flow are different.

Your business may be profitable but still experience periods where there isn’t enough cash available to meet its obligations.

This can happen when:

• Customers pay slowly
• Revenue is seasonal
• Inventory requires significant investment
• Large expenses are paid upfront
• Loan repayments are high
• The business is growing rapidly

Before hiring, look at how the additional payroll will affect your monthly cash position.

Ask:

If sales were temporarily lower than expected, could the business still comfortably pay this employee?

If the answer is no, the business may need a stronger cash reserve or a different staffing approach before committing to the hire.

Review Your Existing Payroll

Look at your current payroll costs in relation to your revenue and profitability.

Consider:

• Total annual payroll
• Payroll as a percentage of revenue
• Payroll as a percentage of gross profit
• Revenue generated per employee
• Profit generated per employee
• Overtime or additional labour costs
• Recent changes in staffing costs

The purpose isn’t to find one perfect payroll percentage.

Instead, you want to understand whether payroll is already placing significant pressure on the business.

Adding one more employee might be manageable for a business with strong margins but difficult for a business where labour costs already consume most of its gross profit.

Calculate the Break-Even Point

A break-even analysis can help you understand how much additional revenue the business needs to support the new employee.

Suppose the total additional annual cost of an employee is $120,000.

If the business has a contribution margin of 40%, it would need approximately $300,000 in additional revenue to generate enough contribution to cover that cost.

The calculation will vary depending on the business model and what costs are included, but the principle is straightforward:

The employee needs to create or enable enough additional economic value to justify their cost.

That value doesn’t necessarily have to come directly from the employee’s own sales.

They may increase the capacity of other team members or allow the business owner to focus on higher-value activities.

Does the Business Have Enough Work?

Financial affordability is only half of the hiring decision.

You also need to consider whether there is enough sustainable work for another person.

Look at:

• Current workload
• Customer demand
• Sales pipeline
• Existing contracts
• Repeat business
• Upcoming projects
• Seasonal patterns
• Customer retention
• Expected future demand

A temporary spike in workload may not justify a permanent employment commitment.

If the additional demand is recurring and supported by reliable revenue, the case for hiring becomes stronger.

Is the Business Owner the Bottleneck?

Sometimes the business has enough demand, but the owner doesn’t have enough time to service it.

If you’re spending most of your working week on administration, routine tasks, or operational work, another employee could potentially free up your time.

Consider what you could do with an additional 10, 20 or 30 hours each week.

Could you:

• Meet more customers?
• Generate more sales?
• Develop new services?
• Improve existing systems?
• Build strategic partnerships?
• Focus on business development?
• Spend more time managing the team?

If the employee creates capacity for activities that generate meaningful value, their financial contribution may extend well beyond their direct output.

Look at Revenue Per Employee

Revenue per employee can provide a useful performance indicator.

A simple calculation is:

Total Revenue ÷ Number of Employees = Revenue Per Employee

However, this number should be interpreted carefully.

Different industries have very different labour requirements, and revenue alone doesn’t tell you how profitable the business is.

It can still be useful for comparing your own business over time.

If you continue adding employees but revenue isn’t increasing at a sustainable rate, it may be worth investigating whether the business is becoming less efficient.

Consider Profit Per Employee

Profit per employee can provide another perspective.

For example:

Net Profit ÷ Number of Employees = Net Profit Per Employee

Again, this isn’t a universal benchmark.

Instead, use it to understand how your business is performing over time and whether additional staffing is contributing to improved financial outcomes.

A growing headcount should ideally support stronger capacity, profitability or strategic value.

Don’t Ignore Your Cash Reserve

A business shouldn’t base its hiring decision on its current bank balance alone.

Consider how much cash the business needs for:

• Tax obligations
• Supplier payments
• Existing payroll
• Debt repayments
• Equipment
• Unexpected expenses
• Seasonal downturns
• Future investments

If hiring another employee would leave the business with little or no financial buffer, the timing may need to be reconsidered.

A healthy cash reserve can provide valuable protection when revenue doesn’t go exactly according to plan.

Model Different Scenarios Before Hiring

One of the most useful ways to evaluate a new hire is to model several possible outcomes.

Best-Case Scenario

What happens if revenue increases as expected and the employee quickly contributes to growth?

Expected Scenario

What happens if the business performs roughly in line with its current forecast?

Worst-Case Scenario

What happens if revenue falls, customers pay late, or the employee takes longer than expected to become productive?

If the business can remain financially stable across reasonable scenarios, the hiring decision may be more comfortable.

If the business only works financially under the best-case scenario, additional caution may be appropriate.

What If You Can Afford the Employee but Not the Timing?

A business may eventually be able to afford another employee but still not be ready to hire today.

Timing matters.

You may need to wait until:

• Revenue becomes more predictable
• A major customer contract begins
• Cash reserves improve
• A seasonal downturn passes
• Existing debt is reduced
• Your sales pipeline becomes stronger

Hiring isn’t just about whether you can afford the employee eventually.

It’s about whether the business can support the cost consistently.

Should You Hire Full-Time, Part-Time or Consider Other Options?

If a full-time employee creates too much financial pressure, there may be other ways to increase capacity.

Depending on the circumstances, options may include:

• Part-time employment
• Outsourcing
• Temporary staffing
• Automating repetitive tasks
• Improving internal processes
• Engaging contractors where legally appropriate

The cheapest option isn’t automatically the best option.

Consider the nature of the work, the required level of control, expected duration, and applicable legal and tax obligations.

Signs Your Business May Be Ready to Hire

Your business may have a stronger financial case for hiring when:

• Revenue is consistently growing
• Customer demand is sustainable
• Existing staff are at capacity
• Profit margins remain healthy
• Cash flow is predictable
• You have an appropriate cash reserve
• The role has a clear purpose
• The employee is expected to create additional capacity or revenue
• You can cover the full employment cost without relying on unrealistic growth assumptions

No single factor makes a business ready.

The overall financial picture matters.

Signs You May Need to Wait

It may be worth reconsidering the timing if:

• Revenue is declining
• Cash flow is inconsistent
• Existing payroll is already difficult to manage
• Customer invoices are regularly overdue
• Profit margins are shrinking
• The business has little cash reserve
• You are relying on future sales that aren’t confirmed
• The role doesn’t have enough sustainable work
• The hire would significantly increase financial risk

These signs don’t necessarily mean you should never hire.

They may simply indicate that the business needs to strengthen its financial position first.

How Can an Accountant Help You Decide?

A hiring decision can look very different when you see the numbers clearly.

An accountant or business adviser can help you model the impact of an additional employee on:

• Profit and loss
• Cash flow
• Break-even point
• Payroll costs
• Working capital
• Tax obligations
• Business forecasts

This can help you move from asking “Can I afford another employee?” to understanding exactly what needs to happen financially for the hire to be sustainable.

At Latitude Accountants, we help Australian business owners understand their numbers, plan for growth and make informed decisions based on their actual financial position.

Frequently Asked Questions About Hiring Another Employee

How do I know if my business can afford another employee?

Calculate the employee’s full employment cost and compare it with your projected profit, cash flow, and available reserves. You should also consider whether the additional workload and revenue are sustainable.

How much revenue should a business have before hiring another employee?

There is no universal revenue threshold. The right time to hire depends on profitability, margins, cash flow, existing payroll, and the expected financial contribution of the new role.

Should I wait until I have enough cash to pay the employee for a year?

Not necessarily. Businesses don’t always need to hold a full year’s wages in cash before hiring. However, you should have a realistic cash-flow forecast and enough financial capacity to manage periods of weaker revenue.

How much does an employee really cost a business?

The total cost can include wages or salary, superannuation, leave-related costs, insurance, recruitment, training, equipment, software and other employment-related expenses. The exact cost varies depending on the role and circumstances.

Can hiring another employee increase business profit?

Potentially. An employee may generate additional sales, increase production capacity, improve efficiency, or free the owner to focus on higher-value activities. However, the expected benefit should be supported by realistic financial projections.

Should I hire an employee or use a contractor?

It depends on the work and the actual working arrangement. Employees and contractors can have different tax, superannuation and legal obligations, so the correct classification should be assessed before making a decision.

Talk to Latitude Accountants Before Hiring Your Next Employee

Hiring another employee can be an important step toward growth, but the financial impact needs to be understood before you commit.

Latitude Accountants helps Australian business owners assess profitability, cash flow, budgets and forecasts so they can make informed decisions about staffing and business growth.

If you’re considering another hire but aren’t sure whether your business can comfortably afford it, our team can help you review the numbers and model the potential impact before you commit.

Latitude Accountants

📍 Sydney Olympic Park | Marrickville | Melbourne | Loxton
📞 1300 706 597
📧 info@latitudeaccountants.com.au

Want tailored business advice? Let’s chat.

Disclaimer

This article provides general information only and does not constitute financial, tax, accounting, employment or legal advice. Employment costs and obligations vary depending on individual circumstances and applicable Australian laws and regulations. You should seek advice from appropriately qualified professionals before making decisions about hiring employees or engaging contractors.