Can your startup afford the next hire?

You can afford the next hire when the business can meet the full cash cost, keep an appropriate cash buffer and absorb a realistic delay in the benefits you expect. Salary, this month’s bank balance and an annual budget are useful starting points. You also need to see what happens in the months after the person starts.

Start with three versions of the same forecast: carry on without the hire, hire on the proposed date, and hire with slower sales or customer payments. The comparison should make the trade-off clear enough to discuss with your team and board.

Put the whole cost on the right dates

Include gross salary, employer National Insurance, pension contributions, benefits and any bonus or commission. Add recruitment, equipment, software and training costs where relevant. Check the actual payroll assumptions with your accountant: a flat percentage added to salary can miss costs or count them twice. GOV.UK’s employer checklist covers employment costs and the setup responsibilities to check.

Separate one-off costs from recurring spending. Recruitment fees or equipment may be paid before the start date; payroll deductions and employer charges have their own payment dates. Consider absence cover separately, without counting the usual salary twice. Include the management time needed to make the hire effective.

A simple six-month example

Assume a startup has £240,000 of available cash. Without a new hire, it expects cash outgoings to exceed receipts by £20,000 each month. That existing forecast includes its other commitments. No new funding is assumed.

For this hypothetical hire, assume:

• A start at the beginning of month one.

• £6,000 a month of additional cash costs: £4,500 gross salary and an assumed £1,500 for employer costs, benefits and other recurring costs. This is an illustrative allowance, not a tax calculation.

• £4,000 of recruitment and equipment costs paid in month one.

• An extra £6,000 a month of cash contribution from month four, after the direct cash costs of delivering the extra sales.

For simplicity, all recurring costs in this example are paid in the month shown. After six months, cash without the hire is £240,000 − £120,000 = £120,000. With the hire and the expected contribution, it is £240,000 − £120,000 − £36,000 − £4,000 + £18,000 = £98,000.

If the extra customer cash arrives from month seven instead, none of that £18,000 is received within the six-month period. Closing cash falls to £80,000. The role may still be worthwhile, but the decision now requires another £18,000 of cash capacity compared with the expected case.

Check the low point and the cost of waiting

Suppose this company has chosen a £90,000 minimum cash buffer for its circumstances. The expected case finishes £8,000 above it; the delayed-cash case finishes £10,000 below it. That buffer is an assumption for this example, not a recommended minimum for every startup.

Check each period’s balance, including large payment dates within the month. Extend the forecast far enough to cover the hire’s ramp-up and the next funding or trading milestone. A positive balance at month six does not establish that the hire remains affordable afterwards. British Business Bank’s cash forecasting guidance explains why expected receipt and payment dates matter.

In the delayed-cash case above, moving the start to month four would defer three months of costs: £18,000. With the same £4,000 setup cost and no extra receipts within the period, closing cash would be £98,000. But waiting may also delay delivery, sales or the point when the founder can delegate. Change those assumptions too before choosing a start date.

Agree what would change the decision

• What work or bottleneck will the hire address, and how will you recognise progress?

• Which sales, collection dates or funding assumptions make the hire affordable?

• If those assumptions slip, what spending could change, who decides and by when?

• Would a later start or narrower role meet the need, and what would that delay cost?

Review the forecast against actual spending and receipts after the person starts. For product, operations or leadership roles, the benefit may be capacity or reduced risk rather than directly attributable sales. Record that benefit honestly instead of inventing a revenue uplift to make the spreadsheet work.

Get support with the decision

Regular reports and cash forecasts provide the starting point for this decision. Our Reporting & planning service supplies these, built on accounting handled by our team. Optional Finance leadership adds experienced fractional CFO help comparing choices and putting the plan into practice.

If your starting information is unclear, request a free Founder finance review to understand the gaps in your finance setup and what to improve first.