In the wake of the 2014 State of the Union Address, during which President Obama recommended increasing the national minimum wage, cities and states around the nation had already begun to enact laws to raise worker salaries. In fact, the City of Los Angeles recently voted to gradually raise its minimum wage to $15 an hour by 2020. While the development is largely regarded as a positive one for employees, many small businesses are apprehensive about the effect of raising payroll costs on company profits.
Fortunately, small businesses can take steps to deal with escalating payroll costs while maintaining productivity and performance. Here are some tips for preparing your small business for a minimum wage hike.
1. Audit Your Expenses
Before you can assess the effect of the minimum wage hike, you will need to assess your company’s current financial condition. Take the time to calculate revenue and profits as well as outgoing expenses. Once you’ve examined your cash flow in detail, you can create a hiring plan that your can afford. In some cases, you may find that hiring freelancers or contract workers as needed is less expensive than taking on full-time staff. You might even find that your business may be healthy enough to sustain a wage hike without any radical changes.
2. Increase Prices on Products and Services
In order to pay your workers higher salaries, your business needs to find ways of increasing cash flow, and that often means raising prices on products and services. While customers are rarely happy about a price hike, small businesses should keep in mind that their competitors will also be forced to increase their rates. Companies should keep track of competitor pricing trends and take care not to raise their own rates too high. Additionally, businesses may be able to limit the damage by reducing production costs to compensate for the salary increases.
3. Update Your Tech
To keep costs down after a minimum wage hike, small businesses may want to consider automating certain aspects of the work. By automating certain services, businesses may be able to reduce personnel needs. Additionally, companies should update their websites to be more user-friendly and encourage clients to purchase online rather than visit their brick-and-mortar locations.
4. Hire Better
Because most small businesses operate with a limited number of employees on hand, making smart hiring decisions has always been essential. As the minimum wage increases, however, companies need to assess potential hires with even more care. Along with solid records of experience, prospective employees should posses a strong work ethic and a personality that lets them work well with customers and colleagues. After all, you don’t want to have to replace someone after investing numerous hours in his or her training.
Of course, it’s not enough to hire right. Small businesses must also find ways to retain their best talent. Employees are happiest when they receive plenty of positive recognition and the training they need to do their jobs. Additionally, businesses should strive to ensure that all workers feel like they’re part of the team.
5. Research Your Funding Options
Of course, cutting costs and automating sales processes may not be enough to allow small businesses to support higher salaries. To prepare for the impending minimum wage hike, small businesses may need to explore their options when it comes to raising capital. As a small business owner, you have multiple lending options at your disposal, including cash advances and peer-to-peer loans. Pursuing alternative funding sources can be crucial to getting your business over the hump of a minimum wage hike.
6. Try Not to Panic
When preparing for a wage increase, try not to rush into making changes. After all, no one can predict exactly how a minimum wage hike will affect businesses. Rather than make drastic adjustments to your pricing and operations, explore your options and wait to see how the wage change impacts cash flow. With any luck, profits will remain high and you won’t have to alter your prices or business model significantly.
Small businesses often assume that raising the minimum wage will force them to raise prices as well, thereby alienating their customers. The truth is, however, that your competitors will most likely also be making pricing changes, and in the long run paying workers better can result in increased spending. Ultimately, a workforce with spending power is a boon to all small business owners.
If you’re looking for a restaurateur’s view of a minimum wage hike, look no further than Sal Bednarz’s account of how he weathered the increase.
Help Your Business Thrive
Get our Newsletter