One Bad Hire Can Bankrupt Your Company

Recently I wrote about the importance of hiring and how every individual is an extension of your business. However, I didn’t really address the cost and detrimental effect just one bad hire can have your organization. Recent studies show just one bad hire can cripple, even bankrupt, your business.

Every business owner knows that poor hiring decisions can cost the business in time and training and can have a negative impact on morale. Studies now are proving that poor hiring practices actually are placing many U.S. companies in jeopardy of financial ruin, according to online hiring platform ZipRecuiter.com.

In fact, the research shows that just one poor hiring decision can cost an organization up to 7X an employee’s salary, including benefits, ZipRecruiter said. Such a loss can break a small business, such as solution provider.

The example ZipRecruiter uses is a modest one: Hiring the wrong middle manager at an estimated salary of $50,000 per year can easily cost a company more than a $250,000 in the long run, while a high-level manager can ring up costs in the millions, according to ZipRecruiter.

Supporting this, a study by the Society for Human Resources Management (SHRM) revealed it could cost up to five times a bad hire’s annual salary. SHRM also found that the higher the person’s position and the longer the person remains in that position, the more it will cost to replace him or her.

This is a major issue in many organizations—according to the Harvard Business Review, as much as 80 percent of employee turnover is due to bad hiring decisions.

ZipRecruiter.com’s research also revealed that

But in addition to the hard costs of a bad hire, there is the issue of the time lost not having someone in that position. This is extremely crucial for solution providers as it takes months to get a salesperson up and running, and even longer for some service professionals.

Hiring is not something to be taken lightly. See as many candidates as possible. A few extra weeks can save you months of headaches. Screen all employees through multiple people in your organization and check their references. Your business depends on it.