​Whether the minimum wage increases or not, you need to have a plan in place. Companies prepared for the changes will see less of an effect on their bottom lines. The companies that will see the most significant impact will be small to mid-size operations on whether they will remain sustainable. Larger companies will be affected by the increase but have more depth to absorb the hit.
 
Every industry is different. Some are more labor-based than others and some are more product-based, but either way, there will be an impact and you must be ready for it.
 
This example is based on a company with an average pay of $10.00 per hour and is now facing an increase of a new $12.00 min wage. This will be a 20% average hourly increase. We have to acknowledge that the 20% average increase would have to be applied to all hourly staff. If someone was making $9.00 then was overnight bumped to $12.00, what do you do to the person making $12.00? You will have to bump their pay as well. That is why we will say that there will be an increase of 20% for all hourly wages. We will also be increasing management salaries, but only by 9% for this example. Before getting too far ahead and thinking that my company already pays everyone at least $12.00 an hour and this will not affect you, you are mistaken it will.  For example, if employee A, who does not receive a pay increase due to already making the new minimum wage can get paid the same or close to the same for doing a less skillful, stressful or easier job, how will you retain them? There will be a cost.
 
You will see that there is also an increase in COGS. It would be best if you recognized that there would be an increase in this area. Like you, your suppliers have increased their operating costs. To remain sustainable, they will have to increase their prices and pay the difference. 

Changes to Labor  
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As we can see regarding labor, there was an increase of 16% to reach the 20% increase in hourly employees' wages. The 16% is composed of a boost to hourly wages, salaries, and employer-paid benefits.

Changes to COGS

Fixed Costs
 Fixed costs were held constant, like Occupancy Costs and other fixed costs. We should note that it is fair to say there is a strong potential that there would be an increase in these line items.
 
 Bottom Line
What does this do to the bottom line?
 The company we are using has a top line of $1 million in revenue. Before the increases that we applied, they showed a roughly 9% return after a 25% tax rate.  After the increases, we have associated with the change in minimum wages, their new return is only roughly 1%, an amount that is no longer sustainable.
 
Changes to the Bottom Line

​Now What?
That is where we can help you see what you will need to do to remain sustainable. Remember having a plan and looking at hypothetical situations will set you up to be successful for the future. If you wait for the change to come, it is too late.  

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​Increasing top-line sales are a constant goal for every business, as it should be. As sales increase, the potential for other opportunities become a possible reality. Growth on the top line adds value to the company; it will allow the company to grow, create new departments, expand in marketing, do new R&D, and add to the bottom line.
 
One of the issues we run across with top-line growth is that the bottom-line does not always grow appropriately. It is a common oversight and can easily be missed if you are too wrapped up in the daily grind. The business does not have depth in your management team or at director levels or you as an owner have not been taught to recognize this. It can come from a lack of vital budgeting, knowledge of costs, P&L analytical thought, foresight, or acting reactionary.  The oversight can all be eliminated with strong operations. Operations are the heart of the company and dictate how everything will happen. If the operations are well put together, you will have known all of what we mentioned above. You will also have already had plans in place and forecasted it out.

Let us look at an example of this scenario. This establishment’s fundamental background is that it has successfully operated with profitable growth and a solid business base. The owners are very involved, but involved at the wrong level and are acting more as employees and not as owners. Many critical steps along the way of business development have been missed. However, they have never been a concern because there was always a profitable bottom-line. They made money, so all must be right. Because of their involvement, they never fully completed budgeting, standards, training, or operational manuals. They floated on, “we made money,” so we must be doing great and have everything right. This mindset  is common, and if you own a small or mid-sized company, it may be starting to sink in as you are reading that “yep” that is how we do it.” This company’s business starts to grow at a good pace. The top-line is increasing steadily, and so is the bottom-line, and the owners say all must be good with everything. But is it perfect? Is it right? Is the bottom-line reflecting the number that it should be? Are the owners making what they really should be for as hard as they are working? The answer is probably NO. I will get asked, how is this so? Both lines increased, we have more transactions, and we are making more. But the question is, how much more should you be making, and the answer is always “I don’t know.” Another question is, how much money was wasted or opportunities lost in the process of adding to the top line? Lastly, were you as an owner positioned right within the company as this was all happening? Again, usually followed up with another, “I do not know.”

The “I do not know” answer is one that can easily be changed to definitive, data-based answers. One that puts you in the position to lead the company and your teams. You have the answers. You can see the problems. You have the solution and measurables. You see opportunities and are making strategic plans to capitalize on those opportunities. Do not be the “I do not know” owner, and do not be the owner that leaves money on the table. That money cannot be picked up, it is lost forever. The missed opportunities cannot be capitalized on, and they too have passed. Position yourself correctly, set yourself up correctly, and maximize everything that you can in your company. By doing so,  as the top-line grows, you ensure that your bottom-line will reflect what it is supposed to.