Can Your Business Afford the Next Hire?

The team is stretched, customers are waiting and another employee seems like the obvious next step. The harder question is whether the business can fund the period between the person's first day and the cash they help generate.

Annual profit alone does not answer that question. The hiring plan needs a start date, a realistic cost schedule and an explicit view of when additional work turns into collections.

A role can make strategic sense and still create a short-term funding gap. Test the ramp, not just the annual salary.

Build the cost schedule without shortcuts

List recurring employment payments and the dates they fall due. Add relevant recruitment, equipment, software, training and setup payments. Confirm applicable employment, tax and insurance obligations with the people responsible for payroll and compliance; a generic percentage is not a substitute for that work.

Avoid counting paid leave or other amounts twice where they are already included in the salary or cash schedule. Separate accounting provisions from the dates that money actually leaves the bank.

The government's budgeting guide provides the broader income-and-cost planning framework. Here, the aim is a decision-specific cash schedule rather than a statement of employment law or payroll rates.

Model the first four months

Illustrative example. The proposed role requires A$9,000 of total recurring monthly employment cash payments, plus A$6,000 of one-off setup cash in month one. The A$9,000 is a fictional all-in assumption, not a salary package recommendation or statutory rate.

Additional customer collections are expected to start in month three. Incremental non-payroll delivery costs are shown separately, so extra receipts are not mistaken for cash profit. All amounts below are A$000. The simplified model assumes applicable cash taxes are included in the stated amounts and there are no other incremental flows.

Illustrative incremental cash effect of the hire — A$000

Item	Month 1	Month 2	Month 3	Month 4
Extra customer receipts	0	0	8	14
Employment payments	−9	−9	−9	−9
Other delivery payments	0	0	−4	−6
One-off setup	−6	0	0	0
Monthly cash change	−15	−9	−5	−1
Cumulative cash effect	−15	−24	−29	−30

The hire uses A$30,000 of additional cash over four months. Even in month four, the incremental receipts do not fully cover the incremental payments: 14 − 9 − 6 = −1.

Now compare that cumulative effect with the existing cash plan. Suppose baseline month-end balances without the hire are A$65,000, A$62,000, A$70,000 and A$78,000. With the hire, they become A$50,000, A$38,000, A$41,000 and A$48,000.

Against an illustrative A$40,000 operating buffer, month two is A$2,000 short. That is a management-buffer breach, not a negative bank balance. It shows when the decision needs more attention.

Challenge the revenue assumption

What must happen for the additional receipts to arrive? Identify the contracts, delivery capacity, billing milestones and collection timing. A salesperson's annual target should not become monthly bank receipts simply by dividing it by twelve.

Test a slower start and delayed collections. Also consider whether the role protects existing revenue or releases another person's capacity rather than directly generating sales. Where the benefit is strategic or non-financial, describe it honestly instead of inventing a revenue number to make the model pass.

The pipeline-to-cash guide provides the handoff from opportunity to payment. The scenario guide shows how to separate a timing delay from a genuine loss.

Separate recurring break-even from cash recovery

Under a separate simplified steady-state assumption, suppose each dollar of collected sales leaves 60 cents after non-payroll delivery payments. Covering A$9,000 of recurring employment payments would require A$15,000 of monthly collected sales: A$9,000 divided by 60 per cent.

That is not the same as recovering the A$30,000 used during the ramp. It also assumes the contribution relationship is valid and ignores any later mismatch between delivery and collection dates. Treat it as one diagnostic, not a hiring approval rule.

Approve the assumption and the review date

Record the approved start date, expected cost, ramp assumptions, operating buffer and owner. Choose a review point that allows a real response if the expected work or collections do not materialise.

Use the weekly cash forecast around the start date, not just month-end totals. Explore MagicHub for our approach to making operational decisions visible in the financial plan.

General business education only, not accounting, tax, legal or financial advice. Worked examples are fictional and simplified, not customer results or industry benchmarks. Confirm the assumptions and obligations that apply to your business with your adviser.