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Will small-business hiring lead the economic recovery?

April 1st, 2010 / By: / Management

How to know when it’s time to bring people back

Right now, what does your business need most? More workers? Government hiring incentives? A bank loan? More business?

You know the balancing act only too well—capital, expenses, staff and production. Now, as we find our way out of recession, Washington is trying to help with inducements to hire. Government hopes that small-business hiring will lead the recovery, spurred by its proposals for hiring incentives, both at federal and state levels. Georgia, for example, has offered business grants of $250 for each new hire trained under the state’s Work Ready Program.

There are other factors, certainly. Bank loans may also encourage hiring, but banks have drawn widespread criticism for being slow to open the capital spigots to small firms.

In any case, before you hire more workers—don’t you need more orders?

Fabric product manufacturers are sorting it all out. With or without government incentives, hiring presents a complex set of issues. “That takes a lot of strategic planning,” says Greg Schmieler, vice president at Laurel Awning Co. in Apollo, Pa. Yet he’s “not letting the recession hold me back” on occasional hires as needed.

Working the job

Do you really need a new full-time employee? Schmieler sometimes finds out by working a job himself before hiring. That may be a particularly good approach now, because the industry that emerges from the cauldron of recession may be more streamlined, and require both new equipment and new or upgraded skills for employees.

Patrick Hayes, CPP, founder and chairman of Fabric Images Inc., Elgin, Ill., makes a point of tracking his firm’s skills needs. If a candidate with key skills is available, Hayes may hire before orders are in the pipeline. Be ready when business begins to stir, Hayes counsels. Know what skills you need. Workers with those skills will be worth the investment. “How long does it take for you to get a person on line?” asks Hayes. “If it’s going to be critical to your future, you might want to start looking.”

In other words, when to hire may depend upon more than orders in the pipeline. Crafting great products requires certain specific skills—which is why many IFAI members have tried hard to keep their people on staff despite lean times. If you had layoffs, will those people still be waiting when business rebounds? Should you rehire sooner rather than later, before they move on?

Many employers are wary of hiring too soon. The National Association of Professional Women polled its members in February and found that 66 percent liked President Obama’s proposal for a $5,000 tax credit for new hires—but only 20 percent of them thought that they would hire anybody as a result.

Some doubt that such incentives help. “If government stays out of the economy, life will be good,” says Schmieler. Educator Matthew Kenney, founder of Kenney College in Miami,Êwhich offers anÊonline MBA in entrepreneurship, fears that politicians have a “fundamental misunderstanding of the entrepreneurial mind.” Political types make “sweeping generalizations about entrepreneurs and small-business culture,” he says. Like others, Kenney thinks the best stimulus would be tax cuts.

Nevertheless, federal Small Business Administration (SBA) guarantees of private-sector loans are a longstanding source of credit for small firms. In February, President Obama asked Congress to expand such lending programs to help small firms refinance commercial real estate loans and gain access to credit lines. These federal and state incentives may well influence small businesses on the cusp of hiring.

What’s the question?

When should you hire again? Maybe a better question is: Why do you hire? Because of government incentives? Because business is up? Because you have a hunch? With or without government incentives, should you hire in anticipation of a turnaround, or should you wait until you have orders in hand?

The trouble with hiring before business bumps up is that if anticipated demand doesn’t materialize, you may have to turn around and dump workers again. In small businesses, layoffs are personal: You know these people. Moreover, you may incur unemployment-insurance expenses.

It’s a tough call. “What can you afford, and how much risk are you willing to take?” asks Hayes. “Hiring back depends on where you are going, and having a trained workforce to get you there.” He says that Fabric Images constantly grooms a five-year plan, adjusting it for changing times. When he spots a clear need, he may hire, whatever the economy. “We are always on the lookout for good talent,” says Hayes.

Educator Kenney prefers orders in hand before hiring—but never say never. Track long-term employees-to-revenueÊratio and hire accordingly, he advises. “If a marketing plan indicates that revenue will be increasing and there’s going to be a demand for more labor,” Kenney adds, “then companies should definitely try to get the people in place proactively.”

At Fabric Images, it’s a priority to identify key technologies, including new ones, that make the business more productive. When it comes to workers who know how to use such technology, “start shopping for help as soon as you can do so,” Hayes urges. “It’s a matter of how long it takes you to get a person on line.”

Suppose you hire, and the work doesn’t materialize, or quickly dries up? You can hedge that bet. Identify workers you want to keep and payroll them through a local employment agency, suggests Lesa Caskey, who runs a staffing firm called Brick Elm LLC in Pasadena, Calif. The agency then bears the risk of paying jobless benefits if you lay off those workers. The downside is that your net costs will be as much as 30 percent higher as the agency collects its fee. After a few months, you can decide whether to put new hires on your own payroll.

Keep in mind that there’s another major factor that bears on hiring these days. Even if you want to hire more staff, the cost of health coverage may be prohibitive. Or workers with skills you need may be locked in at larger firms, staying put primarily for the health coverage those companies offer.

The effects of government hiring incentives may pale in comparison. What may get small firms to hire, suggests Kenney, is universal health coverage.

Marc Hequet is a business writer based in St. Paul, Minn.

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