Tips on Staying Profitable With Rising Labor Costs

States and cities across the United States have been raising minimum wages in response to pressure from citizens and activists, creating pressure on businesses. But what almost everyone has missed is that aside from the raise in minimum wages, wages for the poor have been rising even in states which have not passed new minimum wage laws, thanks to continual low employment and rising demand. Rising wages has more expenses for employers beyond the wage increase, as a business owner may also have to pay more in payroll taxes and 401ks. But with wages rising across the board, employers need to sit down and think about how to streamline their businesses in order to stay profitable even in an era of higher costs. Rethinking Hiring An argument made by minimum wage opponents is that every hired employee becomes a greater risk with a higher wage, as the losses from giving money to someone who turns out to be a deadbeat grow higher. While that may be true, businesses should consider viewing new hires as an investment rather than a risk. Instead of bringing in temporary workers at a low wage, businesses should try to bring in a higher-paid employee who wants to stay for a long time. This means investing in building a strong company culture where employees want to stay as well as improving your interview and hiring process. This approach may seem paradoxical given the noted rootlessness of the growing millennial workforce. But much of that rootlessness comes because times are less stable for that generation. Promise stability and a stronger company culture, and millennials will stay. Streamlining and Making Expenses Clear If your business is paying more in workers’ comp injuries vs. wages, then it may have to cut back elsewhere. But if you do not actually have a thorough and detailed grasp of your business’s expenses, it is impossible to make a good decision on where to cut back. As American Express points out, far too many businesses rely on spreadsheets or homegrown solutions rather than a detailed system of expense reports to manage expenses. Excel is useful for many things, but actual bookkeeping software like QuickBooks or Abacus can automate routine expenses and categorize them so that a business can properly figure out where it can cut back. Big Data is the name of the game not just for large corporations, but for small businesses as well. Raising Prices This is the simplest way to offshoot higher wages, but every owner knows that raising prices carries risk. If your industry is more price elastic, then a higher wage will just see less customers. The fact that your competitors will also likely have to raise their wages can soften the impact compared to if only your business did, but the impact should still sting. If you are raising your prices because of minimum wage increases and not because of the general wage rise, remember that many states are slowly raising their wages over time. Raise your prices accordingly to those new wages, though keep track of how much your business declines as a result.