Strategic planning is crucial to the success of all businesses. One of the most critical aspects of strategic planning is creating a headcount plan. Whether you’re navigating the challenges of securing investment or striving to boost revenue, having the right team in place is essential and ensuring that your headcount plan aligns with the overall objectives of the company is crucial. Effective headcount planning ensures you have the necessary talent to drive your company forward while managing the company’s cash and strategic objectives.
Be Strategic with your Headcount Planning
Headcount planning is a delicate balance that requires partnership between finance, human resources, and management. To get started, consider what your goals are for the year. Looking at your goals for the year is a great way to determine what your headcount needs are and when you need to have them on board. For example, if one of your goals for the year is to grow revenue by 100%, you will likely need to hire additional sales staff to achieve your goal. Your headcount plan should highlight when you need to hire the additional team members to ensure you are hitting your monthly, quarterly, and annual revenue targets. Or maybe you are looking to stop development of a product, in which case, your headcount plan may include a reduction of staff as fewer people may be required to support and grow the remaining products at the company. Whether you’re hiring more people or reducing headcount, it all starts with ensuring you are trying to align your people to meet the company’s goals.
Financial and Timing Considerations when Forecasting your Headcount
When forecasting your headcount, consider what the salary range, equity, bonus, benefits costs, and equipment costs will be. Remember that in the early days, as you bring in new people, you will often bring in new software and tools to support them which should also be accounted for in your forecasting. You should also plan for approximately 3 months of ramp up or non-productivity. For a sales rep, this could be even longer depending on your industry. You should also ensure that you are referring to market data when determining compensation to maximize your likelihood of success. When creating your headcount plan, don’t forget to consider compensation for your existing team by incorporating annual increases, promotions, and market adjustments for your existing team.
There needs to be an understanding of what the headcount needs are, what each new hire will be focused on and careful evaluation of the timing to ensure you are not hiring too soon, or too late. Remember that the time to recruit can be quite lengthy, especially for specialised, competitive, or niche-knowledge positions. Most positions take a minimum of 6 weeks from posting to hire date so it’s important that you start the process early. You always have the option to set a start date for the future so there’s no harm in starting the recruitment a few months in advance.
If you plan to bring on more junior resources, consider the time of year and when students graduate to increase your chances of finding someone quickly. If the timing is off, perhaps recruit for a senior co-op as an alternative and then try to convert them to full-time. Better yet, start your co-op program early so you always have a feeder for great full-time talent! Ontario has a great tax credit program for co-ops!
For full-time hires, you can save money with recruitment by using your existing employees and network as a tool to spread the word about hiring. Consider offering a referral bonus to employees for successful referral hires. If you expect the role to be difficult to hire, consider engaging an agency to assist you. Agency costs can range from 15-30% in many cases so factoring them into your headcount plan is also important.
Consider Using Fractional Resources and Contractors
If you are unsure if it’s a full-time role or on the level of experience needed, consider bringing in a fractional resource or a contractor to give yourself some flexibility. In today’s increasingly remote world, you can access a wide range of talent for a fraction of the time and cost without long term commitments. It will give you the opportunity to figure out the right description for the role. So, if you’re working on your headcount plan and you’re stumped with whether it’s a full-time role or unsure of the level of hire you need, consider bringing in someone on a fractional or contractor basis to better understand your needs without blowing through a bunch of cash.
The Risks of Poor Headcount Planning
In working with a variety of clients, we often see companies being quite diligent before a raise when funds are tight but once capital is secured, many of those careful steps are thrown out the window as people are eager to spend and grow. Without proper headcount planning, the company can be back looking for more capital before they expected to. Whether you are bootstrapping or planning out how to spend new funds, work with your team to build a headcount plan. It is valuable resource that is often overlooked and sheds light on where plans might not be realistic. As your scale your business, consider the team who will support and lead this growth. They will make sure you have the right processes and people in place to maximize funds, time, and resources.
BrightIron has helped countless startups develop headcount plans and helped them execute on their headcount plan. Whether it’s People, Finance, or both, we are here to support you!