The danger of employing 15 or more staff

If you have 14 staff (including yourself if your business trades as a company) and are thinking of employing more, STOP. Read this first. There are several reasons to plan carefully before employing any more staff. That is not to say you shouldn’t grow beyond 15 staff. This is just the point to stop and do some serious planning, rather than letting your business grow in an unplanned way.

• Once you have 15 staff redundancy is payable if you have to cut back later on.This can be a significant expense for a small business. Redundancy payments have to be made just as sales revenue is dropping putting a strain on business cash flow.
http://www.fairwork.gov.au/resources/fact-sheets/conditions-of-employment/pages/termination-of-employment-fact-sheet.aspx

• Many businesses of this size are managed closely by the business owner. As the number of staff increases it becomes increasingly difficult for a business to be managed by one person. The need for systems or a more experienced middle manager adds additional cost and can squeeze profit. Many businesses that were profitable with 10 staff become unprofitable at 20 staff if the growth is not managed properly.

• Payroll tax (depending on State) kicks in at around this level of staff further squeezing business cash flow.

• If your business has had workers compensation claims, premiums can increase dramatically. Smaller businesses are partly shielded from this, but once the premium hits certain thresholds the premium based on claims experience can go up substantially. (Again this may depend on which State you are in).

• If you sell on credit, you have to pay for the labour and usually the materials for the job before getting paid. The busier you are, the less cash flow in the business. Before bringing on additional staff, have you calculated the additional cash needed in the business to help with business growth?