While minimum wage increases are a boost for workers—increasing their gross income, buying power, standard of living, and disposable earnings – small business owners can struggle with the effects of raising minimum wage. Payroll is one of the most expensive things any business has to deal with, and a mandatory increase—in some cases, can put a major clamp on profit margins.
A minimum wage increase can improve the productivity of a business workforce, because higher wages reduce staff turnover. There is strong evidence that higher minimum wages lead to more stable and experienced workforces. In addition, firms can reap the benefits of employees who can focus more on work and are less distracted by the cognitive demands of poverty (for example thinking about how to get enough money to fix their car because it broke down)
If you’re a business owner, what can you do to survive?
- Reduce costs for a better ROI
Every successful business is proactive to reduce or remove inefficient costs. Consider making an investment up front that will, over time, drive down costs to a point at or below what you would lose in payroll increases.
Closely examine how you spend money. Do you have business expenses that you can reduce? Do you have flexibility in your business budget to rearrange money to payroll and away from something less critical to your business? Could your savings or investments be making more money for you in different ways.
- Increase prices
Increasing prices is the most obvious option, and also the one many small business owners say will ultimately render any wage raises moot. If employers’ costs go up, they have to pass them on to the customers by raising prices, which means that, despite the increase in wages, life will be like it was before wages went up. This is called market equilibrium, and in this case, it would be achieved through inflation, or more dollars will buy the same amount of goods. So, even though pay-checks are bigger, buying power is the same in relation to new prices.
- Streamline your business offerings
When business is good, you might consider looking to expand your business offerings to find new revenue stream or to improve cash flow. However, when times aren’t so good, cutting back offerings that don’t have as wide of a profit margin can be a prudent way of saving money. Reducing the number of products you offer can help you better manage inventory more efficiently. Sell only what’s making you the best return to increase your margins.
- Managing working hours and limit penalty rates to keep costs manageable
Most businesses are already running efficiently, so laying off workers often is not the solution. Businesses can reduce costs by carefully rostering and scheduling their workers to avoid overtime payments for excessive working that attract extra loadings. By carefully managing labour costs in this manner, businesses should be able to offset the increase in labour cost over inflation.
- Create a Culture of Innovation
It’s a mistake to treat Australia’s current economic situation as one of austerity, where businesses need to tighten their belts to wait it out. In both good and bad times, a successful business owner always innovates. Innovation can range from reviewing a company’s operational processes to rolling out a new product or service. Those businesses who best seize the opportunities created by harsh conditions will come out the strongest in the end.
- Say Goodbye to Manual Processes
Because productivity is so important, it’s worth taking a deeper dive into the way work gets done within your business. Too many businesses still use manual processes that needlessly complicate their day-to-day operations. The hidden costs of paper-based and manual recordkeeping can really add up. Now’s the time to conduct an internal review. Ask yourself, what activities do your employees do, day after day, that could be automated? If those activities were automated, you might be pleasantly surprised at how much extra time they have to pursue more productive projects, adding better efficiencies and improved productivity to your business.
Talk to the business advisory team at MGI about our business coaching services and let us help you manage your business profitability and business growth. We can help you benchmark your business against others in the market, strategic planning planning, wealth management and also offer outsourced CFO services.