Can you actually afford this hire?

The question usually arrives the same way. The team is stretched, someone is doing three jobs, a good candidate has appeared, and the owner asks their accountant: can we afford this?

The answer that comes back is usually some version of "your P&L can support it." That answer is nearly useless, because it measures the wrong thing. A hire is not a monthly expense you either can or cannot cover. It is a commitment that changes your cash position for the next eighteen months, made at a moment when you have the least information about how the next eighteen months will go.

The number is not the salary

Start by pricing the hire properly. The salary is somewhere between 70% and 80% of what the person actually costs you.

• Employer payroll taxes — roughly 7.65% for FICA, plus federal and state unemployment. Call it 8–10%.
• Benefits — health, dental, any retirement match. For a small company this commonly lands between $500 and $1,200 a month per head.
• Tools and licenses — laptop, software seats, phone. Modest per month, but the laptop is a lump in month one.
• Recruiting — an agency fee is often quoted at 15–25% of first-year salary, paid up front, and it hits cash before the person has produced anything.
• Management time — not a cash cost, but real. Someone senior loses hours for the first quarter.

Keep the recurring cost and the one-off cost separate, because they behave differently. A $90,000 salary is realistically $115,000–$125,000 of recurring annual cash once payroll taxes, benefits and tools are counted. If you scoped the decision at $7,500 a month, you were about $2,500 a month light on the recurring figure alone.

Year one is higher again, because the one-off costs land inside it. Add a 15–25% recruiting fee ($13,500–$22,500) and first-month equipment of around $2,500, and the first twelve months come to roughly $131,000–$150,000 — somewhere near 1.5x the salary rather than the 1.3x the recurring number suggests.

Then price the ramp

The second error is assuming the hire produces from day one. Almost nobody does.

A delivery hire in a services business might be billable at 40% in month one, 70% by month three, full by month five. A salesperson might not close anything for two quarters. You are paying full cost against partial output for the entire ramp, and the gap is funded out of cash you already have.

The cost of a hire is not the annual number. It is the cumulative cash deficit between the first payroll and the month they cover themselves.

That deficit is the number worth knowing. For a $90K delivery hire with a four-month ramp, it is commonly $35,000–$45,000 — considerably more than an owner assumes when they think "we can cover $7,500 a month."

Three questions that actually decide it

1. What is the trough, and when does it happen?

Lay the fully-loaded cost against your existing cash forecast and find the lowest point. Not the average — the trough. If your worst month currently leaves you with six weeks of cover and the hire takes it to two, the answer is no, regardless of what the annual arithmetic says.

2. What has to be true for this to work?

Write it down before you make the offer. "This works if we close two of the four deals in the pipeline by March." That sentence turns a hope into a checkable condition, and gives you a date at which you will know whether you were right.

3. What do you do if it doesn't?

Decide the response now, while you are calm. Slow the next hire, defer a distribution, draw on the line of credit, have a hard conversation in month four. Owners who decide this in advance act quickly. Owners who don't tend to wait, and waiting is the expensive option.

Should this be an employee at all?

The employee-versus-contractor question is usually framed as a cost comparison, which is the least interesting part of it. A contractor at $85 an hour looks expensive against a $90,000 salary until you account for the loaded cost, and then the two land closer than most owners expect.

The real difference is what you are buying. An employee is capacity you can shape over years — you can train them, move them between functions, and build institutional knowledge that stays. A contractor is capacity you can switch off. You are paying a premium per hour for the right to stop.

That premium is worth paying when the need is genuinely uncertain, when the work is specialist and finite, or when you want to test whether the role is real before committing to it. It is poor value when the work is core, continuous, and central to how you deliver — you end up paying the flexibility premium forever on something you were never going to switch off.

Worth saying plainly: whether someone can be a contractor is a legal question with real consequences, not a budgeting preference. If you control how, when and where the work happens, you are describing an employee, and reclassification carries back taxes and penalties. Price the option you are actually allowed to use.

Structures that lower the risk

Most hiring decisions get treated as binary — offer or don't — when the useful middle ground is wide:

• Deferred start. Agree the hire now, start them in eight weeks. Costs you nothing, gives you two months of additional information, and good candidates will usually accept a defined date.
• Part-time to full-time. Three days a week with a stated path to five, tied to a revenue or utilization trigger. You get the capability early at 60% of the cash.
• Contract to hire. More expensive per hour, dramatically cheaper if it is the wrong person.
• Milestone-linked comp. Lower base with a bonus tied to the outcome the hire is supposed to produce. Aligns the cost curve to the benefit curve.

Each of these trades a little efficiency for a lot of reversibility. When cash is finite, that is almost always the right trade.

What unwinding it costs

Nobody models the downside case, which is why it is so often a shock. If the hire does not work, you are not simply back where you started.

You have spent the recruiting fee, which is gone. You have spent the ramp, which is gone. You may owe notice or severance. Your unemployment insurance rate can rise. The manager who spent a quarter onboarding does not get that quarter back, and the team watches how the exit is handled — which affects the next hire you try to make.

Put a number on it before you sign. If the total cost of being wrong is $60,000 and a bad quarter, you can decide sensibly whether the upside justifies it. If you have never calculated it, you are not weighing the decision, you are hoping about it.

If you carry debt, "affordable" is not yours to define

A hire that keeps you above your own cash floor but below a covenant threshold is not affordable, whatever the model says. Minimum-cash and fixed-charge-coverage requirements sit outside your judgment, and a breach can reprice or accelerate the facility at precisely the moment you have least room. Check the covenant before you check the budget.

The version of this that goes wrong

The pattern we see most often is not a business that hired someone unaffordable. It is a business that hired three people over five months, each of which looked affordable in isolation, and never modeled them together. The first hire is a decision. The third is a structure — and it usually arrives at the same time as a slow quarter.

If you are planning more than one hire this year, model the sequence rather than the individual, and order it deliberately:

1. The hire that unblocks revenue goes first, because it shortens its own payback.
2. The hire that removes the owner from delivery goes next, because it creates the capacity to make everything else work.
3. The hire that improves how things run goes last, however badly you want it. Overhead added before the revenue capacity exists is the most common way a growing business runs out of cash while growing.

Then space them by the ramp, not by the calendar. Two hires eight weeks apart with four-month ramps means you are carrying two full costs against two partial outputs in the same quarter.

How to run it on your numbers

The hiring impact calculator takes your cash balance, monthly net burn, the salary, an employer-burden percentage and a ramp length. It returns the fully loaded monthly cost, your runway before and after the hire, the cash you spend before the person is productive, and how much runway you buy back by delaying the start by 60 days. It takes about a minute and needs no email address.

What it does not do is plot the cash curve month by month, so it will not show you the trough or the month it lands in. For that you need the schedule, which is what the model below is for.

If the answer comes back uncomfortably close, that is usually a sign the question isn't really about this hire — it's about whether the business has enough forward visibility to make commitments of this size at all. That's a different conversation, and a more useful one.