How to Model a Cash Projection for a New Hire

Calculate the full cash impact of adding staff with a step-by-step projection model for your business.

1. Calculate total compensation cost. Start with base salary, then add employer payroll taxes (7.65% FICA minimum), unemployment taxes (0.6-6% depending on state and experience rating), and benefits. Health insurance typically runs $6,000-15,000 annually per employee. Include 401k matching if offered — commonly 3-6% of salary.
2. Add one-time setup costs. Factor equipment, software licenses, workspace setup, and training time. Technology roles often need $2,000-5,000 in equipment and software. Include your time or other employees' time for training — multiply training hours by their hourly cost. Add any signing bonuses or relocation expenses.
3. Model productivity ramp. New hires rarely produce full value immediately. Use a 3-6 month ramp: 25% productivity month 1, 50% month 2, 75% month 3, 100% month 4. Apply this to revenue they'll generate or costs they'll save. Senior roles may take 6-12 months to full productivity.
4. Map monthly cash outflows. Break total costs into monthly payments. Salary and benefits hit monthly, equipment often upfront, payroll taxes twice monthly or monthly depending on your schedule. Use your actual payroll calendar — don't assume uniform monthly distribution.
5. Project revenue impact timing. Estimate when the hire will generate measurable revenue or cost savings. Sales roles might take 3-6 months to close first deals. Operations hires might save costs immediately. Be conservative — use your historical data on similar hires if available.
6. Run cash flow scenarios. Model best case, likely case, and worst case scenarios over 12-18 months. Worst case: hire produces no revenue for 6 months. Best case: full productivity in 60 days. Compare net cash impact to your current cash position and credit facilities.