What Does a Bad Hire Cost a Small Business?

One bad hire can cost you more than a bad year, and most owners don’t find out they’ve made one until months later. In episode 129 of the Mentor Business Podcast, Dr Lewis Haydon talks owner to owner, from his own businesses and the owners he coaches, about how to hire the right person, what a bad hire really costs a small business, and how to check the hire fits your cash flow before you make the offer.

In this episode:

• Why hiring a friend feels good at the start, and what it costs later
• The four wheels every business needs, and how to find which one is holding you back
• The real cost of a bad hire (it isn’t the salary)
• The interview question that beats any CV, and the test to set before the offer
• Why you should track behaviours, not results, in the first 12 weeks

Transcript

Recorded 4 November 2026. Transcript from the recording, lightly edited: names corrected and strong language masked. Figures and details were correct at the time of recording.

One bad hire can cost you more than a bad year

One bad hire can cost you more than a bad year. And most owners don’t find out they’ve made one until months later. In the next 15 minutes, I’ll show you how to hire the right person and how to know before the money’s actually gone.

I’m Dr Lewis Haydon. I research and work with business owners who are fed up of getting paid last: in money, in time, and in what the business leaves behind. This is the Mentor Business Podcast, where I document what actually works for real owners, even when things are going wrong.

This is episode 129. By the end, you’ll know what a bad hire really costs, the questions that find the right person, and how to check the hire fits your cash flow before you make the offer.

How do you hire the right person for your business?

How do you hire the right person for your business? Well, first of all, are you hiring, let’s say you’re an SME. I’ve been there myself. What do you tend to do? You tend to know somebody. You may think that a friend or a family member might make that first big hire, you know, and it works. You get by at the start. However, was it the right person that you actually need?

As you start to scale and you think about your business as a system, you start to realise that maybe that person wasn’t the right person for you. What you actually needed was somebody that fits the constraint of your business, that right person that is meant to do the actual job by design, not because you just needed a hand. And this is where a lot of SME owners will fall into the place of hiring a friend, or hiring someone just because they’ve got a good attitude maybe, or they might fit the role, or they needed a job at the time and you end up getting them. That feels good.

But what happens down the line is you might not have the right person for the job. For example, you might get somebody in to give you a bit of admin help when you first start a business, or they might, you know, want to do some sales or a bit of quoting. But what actually is required is that you need somebody effective that knows how to do follow-up, that knows how to nurture, that knows how to manage their LinkedIn, that knows how to do business development and lead generation. Because you can’t employ, you know, every department all in one go. What do you actually need here?

The four wheels: marketing, sales, operations and finance

Well, first, SMEs that are ranging from $250,000 or pound to a million need to start to structure their business. So it’s more like, you know, the wheels of a race car. What do you need? You need marketing, you need sales, you need operations and you need finance. They are the basic four things of any business. The wheels of the race car that start to spin so that you can get around that track faster.

Now you are the driver of that. Yeah. And when it first starts off, you are sitting in every one of those wheels that make it all go around. So when you first start a business, you end up doing marketing, sales, operations and finance, and you just need a hand. But as you start to grow and start to scale, you might learn things, especially things that you might hear from other coaches, or that you might go and get some help from somebody who owns a larger business. They’ll go, “Hey, look, you need to think of it more as an organisational chart. You need to have all these things set out.”

But the reality is you can’t afford to have all these people yet. So you go on that journey of just getting the right people at the right time. But it is also the danger. So take some lessons from having an organisational chart, like who sits in the marketing seat, who sits in the sales, who sits in the operations, who sits in the finance. But cash flow is limited. You need to figure out who is the right person at the right time.

Hire for your constraint, not the org chart

So this is where that all goes out the window, thinking about, you know, organisational charts and big things like this, where a lot of coaches will try and teach you a generic system. What you need to be looking at is: what is the constraint in your business that stops your business from moving forward? Okay. So if you’ve got an operational constraint where you’ve got lots of sales in, you need to have the right person for the operational constraint. Now that person might be an ex-operations manager somewhere; doesn’t mean it’s right for your business.

Which is always really good, because if we actually sit down and speak, if you go on my website, lewishaydon.com, you can book in for a virtual coffee. You can have a conversation about this. But for a podcast, I’m speaking to the masses, right? So I don’t know your business right now. So you have to really think about who is that right person? What is the job role that they have to do? “But Lewis, that’s thinking too big of a business. I’m not a corporation and things like that.” It doesn’t matter.

Write the job description first

Plan out what the customer journey looks like for your business. Where is the constraint? Is it in getting more leads? Is it in making more sales? Is it in the operations? Is it in the finance? Look at the constraint in the business and then build a job description for it. Why do you build a job description? So you can start to plan out where the different job descriptions are. If you were to just go out and hire 10 people straight away for the business that you want to build, to deliver the value that you want to do. Let’s say if you want a one million pound business or a 10 million or a hundred million, you need to have that right structure to support that level of business.

And this is where a lot of people go wrong. First of all, they’ll go and make hires for the wrong person at the wrong time, or they will try and go too big and have everything all in one place and not really have the cash flow to support it. So it’s quite important now that you do something that doesn’t cost you money, which would be to just have these job descriptions set out for the ideal business that you need.

And that’s where we’ve got to start to think now. Before you go and make a hire, and you hire your friend, or hire that next sales director if you’re a large business, does it really move the needle? Does it turn the dial on the result that you’re after? So let’s say that you want to make 20,000 a month and you are already at 10,000 a month. Having somebody in there that’s a great operations manager because he’s a friend of yours and he could do something, versus having an effective sales manager when you’re constrained on actually getting the sales in the first place, is what I’m talking about here.

And it might not be that you just need a great salesperson. Somebody who’s good at selling, I don’t know, Sky boxes, for example, versus somebody that’s good at selling service-based stuff, is going to be a totally different kind of knowledge of sales, okay? One’s more nurture, one’s more fast-paced. So again, this is why writing down the job description first, and how it fits into your business model, is essential. And it won’t cost you anything to actually create the job description, but getting the wrong hire will cost you a lot of money.

What does a bad hire really cost a small business?

What does a bad hire really cost a small business? Have you ever thought about that? Well, think about it. When you hire somebody, you’re not just paying out a wage. You’re not just paying out the PAYE or the taxes or wherever it might be in your country. Yeah, you’re not just paying that out. Think about the time it costs to train them. Think about the customers that they upset. Think about the good people who leave because you made the wrong hire. And then think about the cost of starting it all again if it goes wrong.

See, people don’t always see these hidden costs when it comes to business, but you’ve got to start to think differently and think outside the box. A lot of business owners just act reactive to the thing that’s in front of them. But the thing that really matters is how does it fit proactively into the plan that you’re trying to build? Now the plan that you’re trying to build should always look at what is the constraint of the next 18 months that we’re going to start to face.

And how do we start to strategise? How do we start to budget the cash? How do we start to find the right people? And how do we start to build the most systems or technology that we bring in? Yeah, using AI, et cetera, to bring stuff in, you know? How do you start to make sure that you’re planning ahead of the game so that you can do the right stuff cost-effectively?

So the amount of times I’ve seen in businesses where they’ve just gone and had a go at something because it feels like it’s the right next best thing. And they’ll book a virtual coffee with me and say, “Lewis, look, we’ve tried this and it didn’t work.” And I’m like, well, you did it wrong. I could have saved you 10 years of your life just by saying that you could do this. And you’ve hired the wrong person here just because it was a nice person, but they’re not very effective at actually solving the constraint that you need.

The real cost: you get pulled back into the job

Okay. So the real cost is the owner’s pulled back into the job, and that’s the danger. Yeah. All the things I mentioned at the start: the real cost here is that you, the owner, get pulled back into the job. Why? Because you might’ve hired somebody that can promise great lead generation. Let’s say it was a marketing person, but there’s no point having great lead generation if that person can’t actually generate the right leads. Yeah. Well, if they’re not qualified leads, or they don’t understand the funnel of how to nurture them through to a sale.

A lot of companies that I meet, they don’t really like wanting to do sales because they’ve had some luck previously with marketing. So they rely completely on their marketing. However, their marketing is not built for a nurture system that generates sales. It’s built for a lead generation system that is never really nurtured. Again, this is the difference between selling a $10 widget versus selling a, you know, $100,000 program. Yeah. You’ve got to understand that there’s a different process for each one.

Now, if you hire somebody just because they’re a great salesperson on paper and you get the wrong hire, what will happen is you, the business owner, will end up doing their job. So what will happen then is that you could be spending 30, 40, $50,000 or pounds on a person that wasn’t actually… and it’s not their fault. You hired them. Remember, it’s your fault, because you hired the wrong person. But what you’ve got there is that you’ve just given somebody a job, but you’ve still got to do the work to actually generate cash flow.

Remember, the whole business’s job is to create this cash flow machine that is paying people to generate that investment even more. So you want to get some sort of return on investment. If you’re spending 30, 40, 50,000 pound on a hire, can that person generate more revenue and more profits? And this is where people start to fall down with their numbers. So just think about it differently now. What is the true cost that it’s actually costing you by getting a bad hire? A hire that went wrong in one of your businesses, right?

So it could be somebody that you’ve got wrong in the business. Think about what the costs of that actually made. If you’ve been in a previous company before and you’ve had somebody there that was clearly not supposed to be there, or wasn’t doing the job effectively, why do you allow that to happen in your company as well? Have you ever been taught any different? Have you ever been taught how to find the right people? Have you ever been shown a great recruitment process?

Again, if I could sit down with every one of you right now, then everyone would have a different story around it. So it’s not generic, right? There is no such thing as a one-size-fits-all coaching model. What you need here is something that’s tailored towards your needs. So if you want to have a chat about that, go on to the website, lewishaydon.com. And again, I’d love to have a chat with you over a virtual coffee if this stuff resonates with you. Or you can WhatsApp me as well. There’s a WhatsApp message button on there too.

What interview questions should you ask candidates?

So what interview questions should you ask candidates to find out if they can actually do the job? Now, what is the job? One thing I always start with is: do you realise, or do you truly understand, what that job is? Are you just looking for a salesperson? Now I’m talking to SMEs under a million pounds here, right? A lot of people go, “All right, I need a salesperson. Someone’s good at sales, they can do it.” Or, “We just need someone to send some quotes there.” Well, that’s not a salesperson, is it?

So the idea here is to go from what you’ve got now, average, to good, to great. Don’t just think we want to do average. Is this person going to be suitable? If you’re an ambitious business that wants to scale, are they going to scale with you? So regardless of what they might have had on their CV in previous past wins, that’s just their subjective opinion, right? They can put anything on a CV. And then when you call up for a reference: “Well, yeah, I guess they’re okay. Whatever. Just get off my back. I’ve got a business to run.” You know, you’re not going to get true evidence.

So what do you do? Okay. Write down the three things that they must deliver in 90 days. Yeah. Before you advertise anything, what are the three things that you would want to see to know that you’ve had a great hire? And this isn’t about tricking the hire. This is about you nailing down the right person. So it’s right for you as a win and it’s a win for them. Yeah. If they can’t do it, then they’re the wrong person, and it’s the right thing for them to not get the job. Otherwise they’ll be disappointed and you will be disappointed.

So what are the three things that you expect from this job role? Write it down. When you’re in the meeting and you’re having the interview with them, ask what they did, not what they would do. Okay. “Tell me about the last time that you did this.”

And sometimes interviewees as well, they might just give you a lot of jargon and you go, “Yes, that’s good.” No. If it’s not good enough, don’t move on. Yeah. You need to go for the quantity here to find the quality in people. Don’t just take three people that have come for an interview and think that that’s it. You’ve got to go for the quality within the quantity. Get the numbers of quantities up so you can find the quality person, because hiring them is not right for them either. Yeah.

And if you’ve made a bad hire, it’s on you. It’s your fault. You made that bad hire. Get better at hiring. Stop the s***ty hiring. Stop the crap recruitment process. Build your recruitment process. Some companies, I mean, a lot of clients of mine are labour supply companies, which means they’ve got to find people, and recruitment companies. Yeah. The customer is recruiting. Think about it that way.

So what you have to do is, if you make a bad recruitment for one of your clients, which is looking for the job, yeah, so you’ve got two customers, haven’t you? The customer is the person that you recruit, and the customer is the person you’re recruiting for. There’s two customers. If you find the wrong person for the customer, the client, the bigger customer, then what happens is that you’re doing a bad job. So why is it okay to do it in your small SME? You wouldn’t want to put that wrong person in a client’s business, but you put it in your own business.

Set a paid piece of real work before the offer

So here’s what you do about it, okay? You give them a short, paid piece of real work before the offer. Get them to show you; it could be a second-stage interview. And if they really want the job, they will go away and they’ll do the work, and they’ll make sure they jump through the hoops so that they’re qualified to do that job. Otherwise, you’re getting the wrong person. And if you’re not happy with the work, it’s okay to say no. And it doesn’t mean they’re a bad person. It just means that there’s another job for them and it’s not this one.

You want to be able to have these hoops so that you do start to make sure you’re finding that right person. Structured interviews and real work samples predict performance far better than a chat over a coffee. Okay. If you want the references, that’s from actual science, right? That was found out. There’s research papers. If you check out the show notes, you’ll find out where this information is coming from, so that you can reference it as well. If you are the more scientific type and you look for evidence in this sort of stuff, you know, I don’t just talk theory. I’m talking from evidence and proving stuff. That’s what we do on the show.

So what about a tool? Do you want a tool that you can use? If you want to figure out which part of your week to hand over first, go to lewishaydon.com/tools and use the owner time audit. It’s really useful, so you can start to figure out what sort of things you need to be handing over next in your business, to make the best hire that you choose next.

How much does it cost to employ someone?

So how much does it cost to employ someone? And can your cash flow actually take it? The salary is only part of it. Here’s some other things to think about: the taxes, pension, equipment, software, the months before they pay for themselves. All this has got to be accounted for, right? And this is where you should budget for every hire. So put the full costs into your cash flow forecast and run the ugly month, and then look at what the good months and the great months might look like.

So another thing as well is that you’ve got to also remember, something that I use with a lot of my clients and my own businesses, is that everyone might talk a great talk during the interview. However, when it actually comes to doing the job, do you leave them three months to get their feet under the table? The amount of times, by the way, I hear this bulls*** excuse from clients: “Well, he’s not settled in yet,” or, “She’s just not learned it yet. She’s getting there.” This is a problem, because what happens is that you’ve got somebody that might be in the wrong seat for three months, six months, nine months. You’re paying them a salary. They’re never going to advance and achieve their career goals, because they’re not the right person.

Look at behaviours, not just results

So what do you do if you haven’t seen the results? Well, first step is: are they bringing the results you want? However, if you just look for results, then what could be happening is that there could be a turn in the economy, or there could be something external that’s influencing the business. So rather than looking at the results, you want to look at the behaviours. Have they given the right behaviour that’s going to bring the results in a s*** time and a good time and a great time? Behaviour is the result.

So for example, if you was hiring a telemarketer and they only did 10 calls per week, then they wouldn’t be expressing the right behaviour, because the behaviour here is: did you pick up the phone? The result is: how many sales did you get? How many leads did you generate? Okay. So this is from some of my own companies, by the way. I mean, I’ve got a marketing lead generation company, and this is the point, right? We don’t go, “Yeah, this person’s a bad person because they haven’t generated this many sales.” We go, did they do the right behaviours to make sure that they’re generating sales?

The red, amber, green system

So here’s what I do in a lot of companies, my own companies and with clients’ companies that I business coach: I would set up a red, amber, green system. Are they showing the behaviours? Did they make the calls that they said they were going to do? Did they carry out some of the project management stuff that they said they were going to do to improve it? Did they carry out the audit, if it was operations, for example? Have they done what they said they were going to do when it comes to finance?

You see, you can spot the behaviours early. The red flags, the amber flags, the green flags: start tracking that. Within six weeks of tracking flags, you will know the results that they will bring in six months’ time. Okay. So always look at behaviours early, and start to look at what sort of flags they are showing you, red, amber, green, early on. And what you’ll end up doing is saving yourself a lot of money, and them a lot of money, because they’re not in a career that is going to move them forward. Okay. So do them justice. You’re helping people here by flagging it up early. And you can also start to help them as well, as they might need some more support in that role.

So you try it. And like I say, within the first six weeks, you will understand if you’ve got the right person there or not, or you just hired them based on a great CV.

How do you know you’ve hired the right person in 90 days?

So how do you know you’ve hired the right person in the first 90 days? Like I said, six weeks. What you’re saying here with 90 days is 12 weeks. You will know by week 12 if you’ve got that right person. But what you need to do is not just start being subjective around these red, amber, green flags; start tracking key behaviours. People look at KPIs, and it’s such a devil word, isn’t it, to have KPIs in your business. But think about it like KBIs: key behaviour indicators.

KPIs are hard because it’s a result, it’s an outcome. Did you do what you said you were going to do? Did you get this result? And if it was, you know, a bad period, then it’s down on the person. But if you’re tracking KBIs, key behaviour indicators, what’ll happen here is that you will see that you’ve got a hard worker that might just need a little bit of extra coaching or mentoring, yeah?

So I offer marketing coaching and mentoring as well. And a lot of the people that I work with that are building from marketing executives to marketing managers or marketing directors, they will get guidance week on week to start going, “Look, you’re doing the right stuff here, but maybe you just need to align it in a different way. Or maybe you need to start split testing more, or maybe you need to start doing some extra activities to see if that tests the market. Have we got a budget where we can go and do some stuff with ads? If we haven’t, then that’s fine. Let’s do some free stuff and test what we can learn.” Okay.

So there’s a lot of stuff that you can do, but you need to be able to have that dashboard, and you owe it to the employee as well to have that dashboard, to make sure that they’re on track and they’re getting the right support from you as well. Because the last thing you want to do is start to blame the employee when you just need to be looking in the f***ing mirror sometimes, because you are the bad employer. Make sense? Nobody wants to hear that, but look.

This is the Mentor Business Podcast, and I’m Dr Lewis Haydon. And I’m going to give it you quite direct, because if I don’t say it, then who will, right? Are you a great employer? It all starts with the steps of the dance that we’ve spoken about in this podcast today.

One thing to do this week

One thing to do this week: before you hire anyone, write down the three things the job has to deliver in 90 days, and run the full costs through your ugly month. Yeah. Not your great month, not your good month, your ugly month. Find out when it’s a bad time of year for you, and is that person going to manage to cope during the rough times so that they can flourish during the good times? That’s the true test.

Next week: how do you keep great people?

Next week: you’ve hired them, so how do you keep them? That’s the next question, right? You’ve got these A-players and B-players and C-players. You’ve got these people that are supporting your business and moving it forward. How do you keep them? We’re talking about that on next week’s episode. So make sure you tune in to that one, and I’ll teach you how you really grow and keep great people.