In many of the startup companies, the workforce is the key determinant of the future success of the business. It is how you are able to combine your ideas and assets with the right structure of the job roles and talent. Your personnel will also become a large portion of your costs and it will burn your cash on a monthly basis. Therefore you should think twice when modeling the headcount in your financial plan. You have to make sure that you are bringing the right job roles and the right quantity of labor in the right time and reflect that correctly in your financial model.

Here we have a couple of rules you should follow when modeling headcount for your startup business.

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1. Know the structure of your workforce

Based on what business you are in, your headcount structure will vary. Each company will have a leadership (CEO, CFO, CTO, etc...) and an admin function (such as finance, HR, legal), but other than that the structures can vary from one business to another. If you are a manufacturing company, you will most probably have a number of employees in operations that will largely be dependent on the number of units produced. Or if you are in a software development business, you will likely have a number of IT staff that has nothing to do with your internal IT function. Therefore it is good to have an idea of the key groups or categories of personnel that you will need, such as Senior management, Sales, Marketing, Operations, Admin, etc.

2. Get the headcount right

Now that you know what roles you have to hire, its time to think about the headcount and timing. These are very important from the perspective of the financial model, because based on that you will plan your monthly budget. For some job roles this determination is easy and obvious, you will have just 1 CEO, couple of senior managers of functional areas and their count will not depend on sales and will not change over time. Headcount of some admin staff will most likely be rather fixed as well.

However, a great deal of your headcount will depend on your growth and you will need to bring more people in as you will increase your sales. You can try to estimate this headcount and hard-code it into your plan, but then your financial model will be static. Once you will do some changes in your sales projections, you will have to re-estimate the workforce as well. Feanut Financial Model allows you to model the headcount dynamically. You can either decide to model it as a function of sales or units. For example, the model will add an additional salesman for each incremental $100 000 of sales. Or it will add an extra factory worker for each incremental million of units produced. This way the model is dynamic, so whenever you change your sales forecast, the headcount will be re-calculated accordingly.

3. Estimate the cost correctly

When you have the headcount modeled, you need the final step - to translate it into the money terms. That simply means that you need a reliable salary estimates for each job role. Today, there are plenty of sources of salary data by job roles and regions, many of them free. Start with the data that are provided by the government or statistical bureaus and continue with the popular websites such as Glassdoor or Payscale. But remember, you should reflect your local specialties in your estimate. For example, if you want to attract experts from your competitors, you will most likely have to pay some premium on top of the market average.

4. Don't forget the additional costs

Last thing to keep in your mind is that your labor cost is not just the salary. Additional costs, such as bonuses, benefits, staff related taxes and contributions paid by the employer have to be included as well. In Feanut Financial Model you will include them as a % uplift on top of the annual salary. In many developed countries this uplift can hover between 30% and 40%, but check the right estimate for your country and industry.

Finally, you can also factor in the wage inflation. This may be helpful if you model your financial plan for more than 3 years and specifically in a situation where the salaries are expected to rise faster in some regions or industries. This will add an extra credibility to your financial model.

If you want to learn more, you can still use the offer to join our Startup financial modeling online course with a discount for first 100 students.