The Small-Business Guide to Managing Minimum Wage Increases
All politics aside, changes in the minimum wage have effects on all businesses, large and small, whether you voted for them or not. Get out ahead of policy and start a comprehensive analysis of your company now.
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Payroll is one of the biggest expenses any business has. It's also become one of the main topics this campaign season. I'm not here to take a position on the politics of the minimum wage, but I do think this is a good time for every small-business owner to reflect on labor costs and how they relate to the bottom line. After all, our employees won't have any jobs if we don't manage every aspect of our business well.
First, some background. The federal minimum wage is now $7.25 an hour; some states and cities have a higher minimum wage and if your location does, that's generally what you will have to pay. There are some different rules for tipped workers and young workers, especially students. In fact, there are enough rules around wages that a small-business owner would be well advised to consult with a human resources expert before making any wage commitments. (Call your local chapter of SCORE, the Service Corps of Retired Executives, to find out how you can get some free help with this.)
This year, there has been a lot of talk about raising state and city minimum wages, but the push for a higher minimum wage has been going on for some time in many locales. Santa Fe, NM, passed its ordinance in 2003 and its minimum wage is now $10.84. While the headlines often trumpet big numbers for these wage increase ordinances, the truth is their changes are always phased in over several years. San Francisco's minimum wage was more than $10 per hour when it passed a new one, but businesses won't have to pay the mandated $15 an hour until July 2018.
You have time to plan, and here's how to go about it.
Take a minute every month to review your balance sheet. Are your expenses (and your income) where you want them to be? Did you incur unplanned overtime or higher than expected labor costs on a job you were doing? Think about what you can do right now to bring costs back in line next month. If you can't find the savings, ask a financial advisor or your cousin who is good with numbers for help rearranging costs.
Some small businesses are already paying their workers well above the minimum wage. The greater the skills needed, the higher the compensation in any business, large or small. If the prices for your services do not reflect the skill level of your workers, it might be time to raise them. Make your prices reflect the quality of your work and then explain to your customers why that is.
Analyze operating hours.
Are your staffing levels right for the business you are doing at every hour you are open? If you know only a few customers come in after a certain time prior to closing, think about cutting back staffing or shutting down earlier to bring costs in line. If you could make more money by being open on a day or time that you are currently closed, put that plan in motion now.
Invest in tech.
Not every industry lends itself to automation, but some job functions do. If you are paying a full-time bookkeeper, think about moving to invoicing technology instead. It can enable your workers to send an invoice before they leave a job site and, if their smartphone or tablet is equipped with a card reader, they can immediately process payments too. With the cost of many kinds of technology falling, there may be more opportunities to offset labor costs than you might imagine.
Nobody wants to lay off workers and you won't have to if your business is growing. Take time now to identify the opportunities that will keep your business in the black no matter what wage increases are mandated down the road. Then make a plan to make them happen.