I often get asked the question, “when should I employ someone in my plumbing and heating business?” Frankly, it’s not easy to answer, but hopefully what I’m about to explain in this blog will give you something to work from.
“There is no point employing someone if it’s not going to be profitable.”
First of all, see your business in £100,000 income blocks per year. Broken down monthly £100,000 is £8300 per month. Whenever you’ve got £8300 of recurring labour, month on month, work on your order books, quotes accepted, services booked in, renovation started etc, that would be the time to then seek and employ a new engineer.
The reason why I’m saying £100,000 is because there is no point employing someone if it’s not going to be profitable. Let’s say an engineer is payed £30-50,000 per annum. So straight away that’s 50% of that £100,000 gone in wages. You also need to supply that engineer with a van, a CRM system, tools, equipment, t-shirts, insurance, telephone, and all other costs associated with employing someone such as employers NI and pension costs. So that then might bring the cost of an engineer up to £60,000.
If you’re getting busy in the office and you’ve got another £100,000 block of fees to work with then you might need to take someone on to help with admin, and telephone answering. That could then account for another £5-£10,000.
That brings your total employment costs up to £70,000. So, if you’ve got £100,000 worth of work, that would be the time to employ someone.
But don’t forget you need to consider employer national insurance, pension contributions, holidays off (standard 28 days plus bank holidays – you really need to consider this because when an engineer is not working they’re not earning you money, but they’re costing you. So on top of that £50,000 salary, you would need to add on 11% to allow for the time they’re not working), training courses etc. These are all costs that will need to be absorbed by your business.
Let’s take £100,000 and divide it by 260. The reason we divide by 260 is because if we take 5 (working days per week) multiplied by 52 (weeks in the year) = 260. So whenever you’re looking at your busines in terms of cost, always work off the number 260. The number of working days in the year.
Now lets say you’ve got £100,000 worth of work, divide it by 260, that’s a day rate of £384. That’s the minimum charge out rate which an engineer should be earning each day. If you earn more than that, perfect- it can go straight down as profit. If you’re earning less than that, it’s going to hit your business. There’s going to be too much cost in your business and employing another engineer is not going to be profitable.
That’s why I suggest having at least £100,000 block of fees or labour, before you consider employing someone.
Until you reach £100,000 in repeating, re-occurring income I would suggest you employ subcontractors. Therefore, they’re not on the books, you’re not committed to a wage and you can use them as and when you choose.
Hopefully that gives you a bit of insight on when you should be employing someone.
If you would like to discuss the content of this blog with me please do not hesitate to get in touch.
0114 400 0119