How can I determine if I can afford a new employee?

4

I am working as a single worker in my small office. For the last year I have had more work than I can manage and I am thinking about employing someone to help me.

Now, is there a way that I can determine if I can really afford a new person? I don't want to hire someone for a few months and then have to let him/her go.

So I am looking for a way to "know" if I can really afford a new person. For example, is there a formula or tip that can tell me something like this: "If the salary is X dollars per month, you should earn N times more dollars monthly" or something like this.

EDIT Here are some additional info.

1. Industry - Software development
2. We sell services. At this moment I don't have a product on my own which I can sell nor I have any annual contract which will guarantee certain income in the current year.
3. Overheads are minimum - web server, office bills like electricity, and so on. I don't pay office rent, have it for free. I'd say that annual overheads are \$1500.
4. Employee would be a developer as well.
5. The candidate is somewhere between junior and senior. Not senior yet, but not a beginner as well. Has 5-6 projects done already.

3

Speaking from a bookkeeping standpoint there is a "formula" to go by:

if (the gross amount of the annual paycheck) << (the total gross amount of money earned over the total year - your gross annual salary)

AND

(gross employee annual salary + your gross annual salary + taxes + other expenses) < (gross amount earned)

If you're looking for a short term employee than you should have 3 - 5x his gross monthly salary in "reserve" to justify employing him.

Things to consider:

SHORT TERM:

• current work load (any contracts that will be ongoing for the next several months)
• current account balance (check your cash flow)
• should things start to go slow, how long could you keep the employee staffed without having to worry about your account balance.

LONG TERM:

• how much extra money could the extra employee bring in (do a conservative estimate)
• will that amount be larger than the amount needed to sustain your employee salary plus bring you profits

Keep in mind that you should do these estimates conservatively and do estimates for the worst-case scenario.

My best advice to you would be to consult with an accountant, manager or at least with a good bookkeeper on how feasible employing someone would be.