With impending minimum wage increases in New York, California, and Oregon, many businesses in the middle market have been left wondering how they will accommodate an increase in salary expenses for their businesses. Although these changes provide a unique set of challenges for business owners, they can also be seen as an opportunity to create a stronger business.
We talked to Eric Meerschaert, managing director of Chicago M&A Advisors, and Sean Hutchinson, founder and CEO of Strategic Value Advisors, to get their take on how business owners should respond to the changes.
According to Meerschaert, the increase in minimum wage will “demand companies operate at a higher level of productivity.” Here are a few tips to ensure your business prospers in a $15 minimum wage world.
- Account for the bottom line changes to your business. You know that your bottom line EBITDA will go down because of an increase in wages, but just how much will your company be affected by those changes? Meerschaert stresses the importance of “getting ahead of these changes” by conducting a comprehensive analysis of the effects of the increase of minimum wages on your bottom line. This way you can come to a full understanding of the increased level of production you will need to achieve to make up for this loss when the minimum wage changes take effect.
- Eliminate operational inefficiencies. You’ve been operating your business for years and along the way you are bound to have developed some inefficient processes. “It’s important to map out the steps necessary to produce a product, in order to find the waste in your processes,” says Hutchinson. Now is the time to identify those inefficiencies and develop a plan to eliminate them from your business.
- Turn to your people. Hutchinson recommends engaging your employees in discussions about how to make your company more efficient. “It’s important to invite employees to be part of the process of identifying and eliminating waste.” He advises CEOs explain the situation to employees, and “work together with them to eliminate waste because they are closer to the situation.
- Invest in technology. Make sure you’re keeping up to date with all the technologies available to help your business and cut costs. According to Hutchinson, “New technologies can help drive costs down and account for the changes to your bottom line.” For example, if there’s a new program that allows you to keep better track of inventory but you’ve been holding off because of cost, it might be time to make the investment.
- Don’t panic. While selling your business may be a tempting option in the face of major changes, both Meerschaert and Hutchinson advise against hitting the panic button and selling your business because of the wage hike. According to Meerschaert, “Informed buyers will understand the impact of minimum wage changes on your business and adjust your final valuation aggressively downward. Without a plan to address those challenges, you’ll leave value on the table.”
Amid evolving regulations, business owners will continue to do what they have done for generations: adapt to changes both on a macro and micro level to ensure the success of their companies.