Question

What are some ways that a restaurant chain or other small business can offset the increase in payroll and subsequent decrease in profit as the result of a minimum wage hike? Please explain in discussion format.

Answer 1

Hi,

While minimum wage increase is a boon for workers, small business owners will struggle with the effects of raising minimum wage. An increase in payroll cost will show a negative impact on the profit margins.

To offset the increase in payroll cost and to survive, small business owners would generally take the following steps:

1.Increase in selling prices of the products and services. Although it is a obvious option, one needs to keep in mind the competitors prices.

2.Reduction in costs. One need to analyze their profit and loss statement to find out the business expenses that they can reduce.

3.Reduce staff : Sometimes, the only way for your business to survive is to let employees go.Reducing staff may also mean YOU have to work more hours at your business.

4.Reduce Operating hours:  Take a look at the hours you have employees scheduled and correlate those hours to the wages you’re paying. Do you need employees covering these hours? Do you even need to be open or doing business during some of those hours? Your employees keep your business running profitably, and you want to pay them fairly; but if your budget can’t cover a minimum wage increase, you may need to cut back their hours or your hours of operation.

5.Streamline your business offerings

When business is good, you might consider looking to expand your business offerings in hopes of finding a 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. If you have goods that are consistently under performing, cut them out. Sell only what’s making you the best return to increase your margins.

Thanks.