Do you think your business finances can survive a minimum wage increase? If this is an issue that you have tried to avoid, it is probably time for you to start taking notice. Although the wage hike is not mandatory for private companies, it is an important quality that will help you attract the best talent to help grow the business. If you cannot offer a competitive compensation package, you might end up losing the key talents that could have taken your company to the next level.
For workers, a minimum wage increase means a stronger financial position that will allow them to solve problems like debt. For companies, it is a different matter. It means more expenses and possibly less profit.
Of course, there are benefits to rewarding your employees with a salary increase. They are usually more productive and their loyalty is strengthened. You can expect that they will not leave the company for a year or two. These can prove to be beneficial to the business finances.
This is probably why a lot of small business owners support the minimum wage hike efforts of the government. According to the survey published on SmallBusinessMajority, 60% of small business owners have showed their support to slowly raise the minimum salary of workers to $12 by 2020. In fact, half of the respondents are already paying their lowest-paid employees $12.
If you think about it, raising the minimum wage is good for the economy because 70% of the US economy is driven by consumer spending. By raising the wages of employees, businesses are giving them more finances to spend. They can invest more on housing, food, utilities, gas and other expenses. In the end, it can still be good for their business as people spend more money outside.
Things that will help you stretch the company finances despite the wage hike
While the benefits of increasing the compensation of workers are evident, it remains a fact that business finances will go through some major changes to accommodate this expense. The more people in the company earning below the minimum, the bigger the change that the finances of the company will have to go through. If all of the employees are already earning above the minimum wage, then you probably do not have to do anything yet. Of course, you will have to increase their wages but it will not be as big as the changes that will happen in companies who have workers earning below $12 an hour.
If you think that your company will be affected by the wage increase, there are a couple of things that you can do to prepare your finances. Here are some of them.
Increase your price points.
Since your expenses will increase, it makes sense to compensate by increasing your prices. If the product or service that you are offering is bound to raise prices anyway, now is probably a good time to do that. After all, manpower is an important part of the business. It should be treated like the raw material of a product being created. If the material increases in price, that increases the overall cost of the product. To avoid losses in the business finances, the company increases the price. The same concept applies if you intend to increase the wages of employees. Of course, this has to be done competitively because you do not want to lose customers.
Adjust working hours.
Another thing that you can do is to adjust working hours. If you think that you cannot afford to pay the same number of hours at a higher price, you can ask your employees to come at different shifts so you can lower the hours they are working. The great thing about this is everyone gets to keep their job, the company adheres to the minimum wage hike and the business finances will not be shaken. You can even alter the business hours of your company. For instance, if you have a store or shop, you can choose to open earlier or later in order to shorten working hours without compromising customer service.
Take on more responsibility.
In case you really have to lay off some workers, you can choose to take on more responsibility – or shift them to the deserving employees so you can remove some workers. If the job of three can be done by two, you can give the two a raise and let go of the third. Or you can simply choose to do more yourself. If you think you spend too much of your time relaxing anyway because you delegated too much, it may be time for you to start working harder too.
Automate some business processes.
Technology, although it may sound sophisticated, can help your business finances take on the additional costs associated with a minimum wage hike. Do not be scared of using it to help you cope with the changes in the wages of the workers. Automating some of the business processes can help you take on more of the work so you can let go of some employees. For instance, instead of hiring a bookkeeper, you can use an accounting software product to help you with bookkeeping, taxes, payroll and even invoicing.
Reconsider your third-party suppliers/contractors
If you have suppliers or contractors, now may be the time to study them and see if you can negotiate your contract. Scout for a new supplier so you can compare prices. Sometimes, it is a good idea to opt for a new company because they can provide you with better terms and service. Or maybe, there is a program that you can acquire so you do not need to outsource some business processes.
Lower your overhead costs.
In case you want to avoid laying off workers, you can choose to lower your overhead expenses instead. The amount of savings that you can get will depend on what you are willing to sacrifice. Later in this article, we can discuss further how you can lower your overhead costs to help you cope with the bigger budget allotted for the salary of employees.
While all of these will can help your business finances, sometimes, doing nothing (for now) is the best way to react. As mentioned, if none of your employees are earning below the new minimum wage, you may not have to change anything in your finances. Also, the change in the minimum wage is gradual. As the business improves because consumers are now able to spend more, the company may enjoy bigger profits before the full effect of the minimum wage hike is felt. You may not have to do or change anything after all.
Tips to help save on the business overhead expenses
Most of the time, companies compensate for the higher expense by working on lowering their overhead expenses. There are so many ways that you can accomplish this.
Think about converting into remote workers.
Remote work is a rising trend in businesses – minimum wage hike or not. People like the flexibility of being able to work from home and companies should realize that it can give your business finances great savings. According to a study published in the Harvard Business Review site (HBR.org), one company decided to experiment on remote work. It was revealed that the employees who volunteered to work from home ended up happier, less likely to resign, and more productive. Instead of laying off workers, why not have them work from home instead? There are software programs and systems available that can help you track the progress of the team even if you are not physically with each other. Technology has made it possible for people to work together despite the distance. If they work from home, they get to use their own resources and you do not have to pay for a bigger office space or higher energy costs.
Another way for you to cut back on overhead expenses is to go paperless. Although it is not possible to completely go without paper, you can reduce it greatly. If you reduce your use of paper there are so many ways that you can save. For instance, you can eliminate the need for storage. Paper documents need a place to be stored. If you use digital files, everything can be stored in the cloud. Not only that, you do not have to buy paper, ink-toner, and your use of printers will not be as much as before. That will allow you to save on overhead expenses.
Opt for energy efficient means.
Simple things like switching to LED lightbulbs can help you lower your monthly expenses. There are other places in your office that you can probably save on. Instead of having one printer on each desk, use a centralized printer so you can save on energy costs. Try to invest in technologies that will allow you to save on utilities.
Relocate your business.
It is also a great idea to relocate your business. According to the data published on SmallBizTrends.com, a lot of small businesses take off from their home. If you do not need a big space, you can probably use your home as your office. The rest of your workforce can work from home as well. This will help you save on rent, utilities, etc. If this is not possible, you can relocate to a city where the costs are lower. For instance, New York City is definitely more expensive than Memphis City in Tennessee. If it will not affect business operations, you may want to relocate your business somewhere it will not cost you a lot.
Sell what you are not using or outdated equipment.
If you will choose to operate from a smaller office, you may need to dispose of some equipment or furniture. You can sell them off and use the profit to invest in something that you can use and will make your business more energy efficient.
Use the right credit card – rewards card.
Finally, you may want to be careful about the credit card that you will use. The credit card that you should opt for must help you earn points or cash back rewards. For instance, if your employees are prone to traveling, use a travel rewards credit card so you can earn points and earn huge discounts on some of the trips. If use properly, a rewards card can help you save more money.
If you still need convincing that raising the minimum wage can help business finances, you should look at the effect of a huge wage hike to the company of Dan Price, CEO of Gravity Payments. Although people were expecting the company to fail – the company proved otherwise. Profits were high and they got a lot of clientele. The employees are very happy and their turnover rate was at its lowest. Here is a video of an interview with Mr. Price and the effect of the huge raise he gave to his employees.