5 Actions to Take Right Now to Survive a Minimum Wage Increase
Just last week, the Los Angeles' City Council voted to raise the city's minimum wage to $15 per hour by 2020. It joins a growing number of cities that have or plan to increase the minimum wage. There are many cities, including New York, San Diego and Washington D.C. which are getting closer to raising theirs.
In fact, since the 2013 State of the Union address when the president called for an increase in the minimum wage, 17 states and six major cities have taken action. For the first time ever, more than half of the states in the U.S. have a higher minimum wage than the federal government's $7.25 per hour rate.
Even if you don't live in some of the regions mentioned above you may find yourself doing business with the federal government or companies such as Facebook, which are requiring vendors to increase their minimum wage (and provide paid time off) in order to do business with them.
So on top of tight margins and a slow economy you find yourself facing a minimum wage increase. What do you do? How do you respond? What actions do you take now?
1. For starters, don't get emotional.
Like any government mandate (think healthcare) the worst thing you can do is let your emotions cloud your decision-making. The smartest business owners I know keep their emotions out of their businesses and make decisions based on the facts. And the fact is that your local, democratically elected leaders voted to increase the minimum wage (or a major customer is requiring you to pay your people more if you want to keep doing business with them).
You can try and change that during the next election cycle but these things are difficult to change once the ball is rolling. You can look for another major customer to replace the one you have but that isn't so easy and will take time. So here's what you do: you take a deep breath, put aside your anger, your frustration, even your panic, and start making decisions based on the facts.
2. Raise your prices.
Easier said than done? Of course it is. But you're going to have to raise more revenues to compensate for the added cost. Hopefully you can also reduce some costs and make things more productive, but a price increase is going to be required. The theory is that your competitors, which are also likely paying minimum wage to some of their people, will be forced to do the same thing, so you should be on somewhat of an even playing field.
Because most of these rules take effect over a few years, you shouldn't wait around. You should gradually increase your prices, where you can, to match your cost increases and implement these price increases as soon as you can.
3. Meet with your accountant.
I know, I know. You've been through the books and squeezed every penny out of the business. You can't cut expenses any more. You're probably right. But asking your accountant, a coach or an advisor (there are some great paid consultants who specialize in your industry) may help you come up with some cost cutting or productivity ideas that you hadn't thought of before. These are people who usually see dozens or hundreds of businesses such as yours every year. At best, they may come up with a few good thoughts. At worst, they'll at least validate that you're doing everything possible.
4. Seriously invest in technology.
You see the self-service kiosks in supermarket checkouts and gas stations. You read about Amazon's robots and auto production lines that build cars almost by themselves. Big companies invest in technology for one reason only: to get more done with less resources. Now you're in that same position.
How can you get more done with less people? What automation can you have in your store? What can your customers be ordering online instead of coming on site? How can you get customers in and out of your business without needing an employee's help? Do you need all that space? Can someone else manufacture that product for you with their technology?
Of course, this will be disruptive and costly. But you're thinking five years forward and the investments you make now can position you for the future.
5. Do more work yourself.
All else aside, if you've got to stay in business then you're going to find a way to stay in stay in business. If that means working more hours to decrease headcount then you have to hold that out as an option until you come up with something better. Maybe family members can pitch in more. Maybe you can partner with others and share work. Maybe it's you cooking orders, stocking shelves or getting orders from customers who you haven't spoken to in years. Hey -- maybe that's not such a bad thing either.
Like any small-business owner, I hate it when the government tells me how much I should be paying my people -- be it wages, overtime, vacation or healthcare. But this is not a political discussion. It's a reality discussion. Ever since there have been governments, small businesses have suffered under their regulations. This is a reality of running a business. The trick is making sure a government action doesn't put you out of business.
The five actions above won't guarantee your survival. But they should help.
Entrepreneur Editors' Picks
Not Hitting Your Goals? Here's How to Know If You Should Change Tactics or Strategy.
You Can Generate Your Own Viral LinkedIn Post With This Hilarious Tool
The Best Software Solutions and Tech Providers in the Franchising Industry