Across the nation, there is an ongoing push for increases in minimum wage compensation for workers. Congress recently mandated a minimum wage increase in a three-stage program. With $7.25 as the new hourly standard for compensation across the nation, business owners will experience financial changes in the near future. Small businesses are especially vulnerable when it comes to the effects of this national trend. The following considerations are the key for small business owners as they prepare to face the changes associated with labor cost increases:
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Industry Considerations. Certain industries are more likely to feel the crunch associated with minimum wage hikes. Retail establishments and fast food restaurants are among the industries that will feel the greatest impact. Unfortunately, labor costs general account for 80% or more of the overhead for establishments like these. Small business owners need to be aware of this percentage and plan accordingly to compensate for the growing cost of labor.
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Pricing Considerations. The simplest way to compensate for the increasing cost of labor is to increase prices for products and services. Small businesses that pride themselves in offering low prices or package deals may need to adjust accordingly. Revisiting and revising pricing standards will be a critical factor that small businesses must evaluate.
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Operational Considerations. Increases in labor costs may force small business owners to redevelop their day-to-day operations. They will need to implement measures to maximize efficiency in the workplace and possibly look for creative solutions to reduce the cost of overhead.
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Economic Considerations. There is some good news for the economy when labor costs are increased. The general trend is that labor costs can actually stimulate growth in the economy. When workers have more money in their pockets, they are more likely to reinvest it by making purchases or lifestyle changes, both of which generate revenue in the economy across the board.
Increasing labor costs will impact businesses of all sizes and across all industries. The average small business owner will need to attack problems as they arise and with targeted strategic actions. The rising cost of labor isn’t necessarily a negative facet, but it requires careful attention from small business owners.
