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Why It's Important to Set Financial Milestones Before Hiring Employees

 1 year ago
source link: https://www.businessinsider.com/why-its-important-set-financial-milestones-before-hiring-employees-2022-10
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Why a millionaire cofounder of TransPerfect set a financial milestone for her business before hiring her first employee

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Liz Elting stands outside of the door of the Elizabeth Elting Lecture Hall at NYU Stern

Liz Elting cofounded the translation-service company TransPerfect. NYU Stern

  • Liz Elting cofounded a translation-service company called TransPerfect in 1992.
  • She waited two years, until the business reached $500,000 in annual revenue, to hire employees.
  • This strategy helped the company grow sustainably and remain stable during recessions.
  • This article is part of Talent Insider, a series containing expert advice to help small business owners tackle a range of hiring challenges.
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When hiring employees to grow your business, it can be worthwhile to wait — especially if you're not using venture capital to fund the company.

Liz Elting launched her startup from her dorm room with a fax machine, phone, and rented computer. She waited two years, until the business reached $500,000 in annual revenue, to hire employees, she said.

"We waited longer than some companies do," she told Insider. "We wanted to make sure we had the money to afford them."

Elting cofounded the global translation company TransPerfect in 1992 while earning her MBA at New York University. She is one of America's richest self-made women, with Forbes estimating her net worth in June to be $370 million. In 2018, she sold her company shares for $385 million to her TransPerfect cofounder, Phil Shawe.

Here's how setting financial goals when hiring employees helped TransPerfect grow at a sustainable pace.

Setting goals ensures financial stability

In those early days, Elting set financial goals to ensure TransPerfect didn't spend more than it was making, advice she stands by today for any entrepreneurs hoping to grow their business.

"Be very careful about your money," she said. "Don't spend money you don't have."

This was especially important to TransPerfect's growth because the founders didn't take outside funding, which meant they relied on reinvesting their profits back into the business. Alternatively, that strategy helped the founders retain ownership of the business, she added.

It can also avert the negative impacts of a recession

Furthermore, this approach helped TransPerfect stave off the negative effects of the recession in the early 2000s when the dot-com bubble burst, separating the volatile startups from the successful ones.

"It didn't really affect us in a negative way," Elting said of that recession. "When we didn't have a lot of clients, when we were small and just starting out, we made sure we didn't spend money we didn't have."

Elting applied the same strategy when opening new TransPerfect offices around the world. Last year, the now-international company reported $1.11 billion in revenue.

She said the company would start with one employee at a new location and provide a sales goal — for instance, the milestone could be $50,000 a month for three consecutive months — before they could hire another worker. Then, those two employees together had to sell $120,000 a month for three consecutive months to hire another employee, and so on.

That way, "you're not spending profit that's not there," she said. "We really were able to continue having a culture of frugality."


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