In early June, the city of Seattle instituted a new minimum wage of $15 per hour — the highest benchmark in the country. While the federal minimum wage was not impacted and currently remains $7.25 per hour, most experts believe it’s just a matter of time before that figure sees a significant boost.
Minimum wage can be a very divisive issue among business owners and their employees, but being prepared for future mandatory wage hikes will reduce their impact. In particular, entrepreneurs can leverage four effective strategies for protecting the financial health of their businesses in the face of increased wages.
Strategy #1: Paint a Clear Picture of Your Business
It’s important to understand the reasons why your business is or isn’t making money, and wages play only part of the role. Start by creating a comprehensive list of the fixed and variable costs your business faces, and crunch the numbers to see how wage increases will affect your bottom line.
The major benefit of this approach is that it will likely put a spotlight on other areas for improvement and illustrate places where you could reduce costs. You can’t do anything about higher minimum wages, but you can cut costs and boost efficiency elsewhere to help keep things as balanced as possible.
You’ll be less impacted by higher minimum wages if your company employs a staff of well-trained professionals with specific skills than it will if you’re reliant on a relatively young and relatively inexpensive labor force. If you’re in the latter category, proactive planning will be even more important to making a successful transition.
Strategy #2: Minimize Seasonal Swings
If you operate a seasonal business, chances are you’re more likely to be significantly affected by minimum wage increases. Start planning for the future now by looking into ways to better manage the relationship between cash flow and costs.
One of the principal things you should do is create an accurate and detailed labor cost prediction for the busy season ahead. By having a clear idea of how much money you’ll be paying out in wages, you’ll be better able to manage your cash flow during preparatory phases and less likely to feel the sting of higher employee earnings.
Strategy #3: Hire the Best People Available
One proven way to build for long-term success is to invest in your employees. While increased minimum wages will trigger a spike in operating costs, it will also make better, more qualified, and more efficient employees available.
Hiring good people is an excellent strategy for building a business that will thrive not just in the present, but in the future. It’s true that better employees will cost more, but they will also help you outperform competitors.
Strategy #4: Explore Funding Options
The very survival of some businesses will be threatened by minimum wage increases, while others will experience less severe but nonetheless significant financial pressure. As such, it’s important that you are aware of the full breadth of funding and financing options that are available to business owners.
Merchant cash advances and small business loans are the lifeblood of entrepreneurial financing, but they are just one of many choices available. Cash advances and peer-to-peer lending can also deliver much-needed capital injections, and can come with advantageous terms and less risk.
Use financing strategies in tandem with other approaches to maximizing revenues. Look into automating aspects of your operations, reconsider your product and service pricing, manage employee hours or scale back on benefits packages. In the end, minimum wage increases are a matter of survival for many companies, and the businesses that succeed will be the ones who were prepared to adapt.