Whether we like it or not, several local governments in the United States have imposed ordinances to increase minimum wage including Los Angeles and New York City. Although approved step ups of minimum wage may appear modest (e.g. $9 to $10.50 in the first year), they may have a material impact on the bottom-line, especially when a company has low margins and employs minimum wage labor. The biggest mistake you can make is not doing anything now! See below five tips to improve the profitability of your business:
Meet with your CPA or Accountant to review your costs and expenses in detail.
It’s not enough to just keep your books in order or file your taxes on time. Schedule time with your accountant to prepare a cost report and analyze each item in detail. One approach to analyze your costs is called zero-based budgeting. Start each category at zero and begin budgeting expenses based on their ability to drive value in your business.
Increase prices or add fees related to NEW services or product features.
It’s never easy to increase prices, especially when you’re not offering an additional benefit in exchange. To make this conversation easier, ask yourself whether you can provide an additional service or product feature at a marginal cost. Offering something new will help you pass a price increase to your customers.
Invest in technology/equipment to reduce labor costs.
Review the operating processes of your business to determine whether you can install new technology to reduce labor costs. Also consider seeking debt to purchase equipment or invest in your business. It will be easier to access debt today before the wage increase negatively impacts you and your competitors’ financials.
Uncover hidden gold by reviewing your customer database.
The 80/20 rule typically applies to small businesses in that 80% of your profit likely comes from 20% of your customers. Try to upsell the Top 20% and market to prospective clients that share a similar profile. Also review the other 80% of customers to measure profitability and ease of working with them. If they’re unprofitable or don’t pay on-time, consider firing them. Sounds harsh but this could save your business – consider the opportunity cost of serving an unprofitable customer!
In both good and bad times, a successful business owner always innovates. I’m not only referring to rolling out a new product or service. One can also innovate when reviewing a company’s operational processes. Many successful entrepreneurs claim that process innovation that facilitates execution is more crucial than an innovative business idea.