How Entrepreneurs Can Prepare for a Higher Minimum Wage
Early June marked a major milestone for the U.S. economy when Seattle enacted an increase in its minimum wage from $9.32 to $15.00 per hour – the highest in the nation, topping San Francisco’s $10.74.
The federal minimum wage still sets at $7.25, though there has been discussion around elevating that amount in the near future. While it’s been a hotly debated topic, often pitting employees against employers, there’s no question that these changes will have a major impact on small businesses in the Northwest region and beyond.
As the owner of small business that provides growth capital to other entrepreneurs, I can understand the concerns some have. An increased minimum wage can dent their bottom line but, given the seeming inevitability of an increase, here are some best practices entrepreneurs can use to prepare financially and professionally.
1. Understand the health of your business. The impact of a higher minimum wage in the future will have a lot to do with the relative financial health of your business today. It’s worth noting that most businesses already are paying more than the national minimum wage.
According to the Commerce Department, in 2012 less than 5 percent of workers were paid at or below the minimum wage. Businesses that rely heavily on teenagers and college students will naturally feel the difference more than businesses that employ more skilled or seasoned workers. That said, virtually every kind of small business will need to consider staffing, profitability, training and more.
Begin with a clear picture of your business. That means an up-to-date P&L statement, an accurate assessment of fixed and variable costs, benefits and every other cost of doing business. Understanding how you are, or aren’t, currently achieving profitability will be essential in a higher minimum-wage environment.
2. Recognize the seasonality of your business. Managing the ups-and-downs of a seasonal revenue stream is among the most challenging aspects of any business. Seasonal businesses are especially reliant on unskilled staff, making them particularly sensitive to minimum wage increases.
If that’s the case, you already know the importance of synchronizing your costs to your cash flow. Accurately calibrating labor costs will be just as essential as financing and purchasing inventory. Even if most of your employees are “unskilled” seasonal workers, business success is closely tied to employee satisfaction. Investing in employees is a cost of running a business.
3. Hiring top-quality talent. Any increase in labor costs is bound to elicit concern among small business owners in the near term. It’s important, however, to maintain a balance between short- and long-term thinking. A boost in the minimum wage will indeed make new hires more expensive but it will also enlarge the available talent pool to include employees who are more skilled and efficient.
Less encouraging is the impact of an increase on hiring management talent. Yes, it will become more expensive to bring a manager onboard but that will also be the case for your competitors. The bottom line is, you will need to factor this into your growth plans.
4. Know your funding options. The long-term success of your business requires knowing all of your options for raising capital. Whether it’s simply working capital or you’re funding a business expansion, there are more options than ever today for small business owners. In some cases, a small business loan is the answer, while in other cases alternative financing like a cash advance or a peer-to-peer loan could be the solution. In many cases, these alternative funding sources can vet, approve and finance your business in days.
Whether it’s achieving cost-savings through automation, careful consideration of your pricing strategy, managing hours, headcounts or benefits, you need to effectively convey your particular “story” to potential sources of capital. Take the time to accurately communicate to funders everything you’ve done to make your business as agile as possible with regard to minimum wage.
No matter which side of the political fence you fall on, entrepreneurs must prepare themselves for far-reaching changes such as the minimum wage. In business, as in life, there's no going back -- only forward.