May 31, 2017

Huff Post: Small businesses can survive Ontario's new $15 minimum wage

By John Laforet

Minimum wage workers in Ontario will be earning 31.5 per cent more by 2019 for doing the same jobs they are today. Not surprisingly, many business owners are concerned about the implications this massive increase in their costs will have on their business.

I've always believed that anyone who is prepared to work full time should be guaranteed a life outside of poverty. As an employer, I've learned that money is an excellent lubricant for life. Employees who are properly compensated and alleviated from outside financial stress are better able to focus on ensuring success of the business they work for.

Because our average employee earns nearly three times the legally mandated minimum wage and has extended medical benefits with no copay or deductible, I do not anticipate we will feel much of an impact by this change. Our only exposure to this will be increasing the rate we pay our interns, who already earn more than any current minimum wage rate anywhere in the country.

The biggest challenges business owners will face with Ontario's move to massively increase the minimum wage is how to adjust their business models, sales and marketing strategies to effectively respond to it.


I genuinely believe most employers aren't scrooges who are trying to squeeze nickels and dimes out of their workers to pad their bank accounts. They value a job based on the expected economic output of the position, level of skill required and the other costs associated with staffing, managing and training related to that role. Employers are responsible for creating long-term viability and cash flow stability, and achieve this by weighing value against expense constantly.

Small businesses are especially vulnerable to the minimum-wage increase, as they are less likely to have the financial resources to withstand any hit to profitability that follows, and the dividends small businesses churn out are used to make the mortgage payment, send kids to school and support families.

Employers have six months to react before the first increase happens, and there are a number of steps businesses can take to ensure they are stronger for it.

Employers need to ensure the work employees produce has a comparable increase in value. 

 Here are four steps all small businesses can take over the next 149 business days before the first big increase comes into force, to get their business ready:

1. Increase productivity of employees

If wages are increasing by over 30 per cent over the course the next 18 months, employers need to ensure the work employees produce has a comparable increase in value. Failing to do this will result in a loss of profitability.

Employers can increase productivity of employees by reviewing workflow processes to cut out inefficiencies, reviewing the effectiveness of technology and explore opportunities to automate lower value aspects of employment.

2. Review your business plan and financial model

Determine whether current staffing levels and your pricing strategy are viable with labour cost increases and adjust as necessary. This assumes you actually have a business plan and have done financial modelling already. If you don't, the first order of business is to develop one based on your historical data. Understanding your numbers is key to ensuring your business achieves sustainable, predictable financial health.

Labour expenses are usually the highest line item of most businesses. Taking your historical financial data and re-forecasting your expenses with the increased labour costs your business will experience when the minimum wage increase is fully implemented will help you understand the impact the minimum wage increase will have on your cash flow.

If it puts you under water or unacceptably lowers your profitability, additional revenue and expense forecasts will be necessary to determine what steps are needed to grow your business to where you want it to be.

3. Aggressively grow your sales now

And do so before labour costs increase and begin adding cash flow pressure. Use this potential risk to your cash flow as an opportunity to grow your business to meet the challenge. It is unlikely your team is currently running on all cylinders and a large part of that problem often relates to fluctuations in business traffic.

Getting a better understanding of areas of opportunity for sales growth and driving additional demand during times when your employees are least productive will increase your revenue without increasing your costs.

When attempting a 25 per cent or more increase in sales, it is always wise to work with a professional to develop a marketing plan that is capable of delivering the result you need.

Virtually every business is capable of increasing their sales. 

4. Be prepared to adjust pricing of your products and services

You will need to make up for any cash flow impact you're not able to address through productivity and sales volume increases. Virtually every business is capable of increasing their sales, but if you decide growth is not the solution you're prepared to invest in (and increasing productivity doesn't take you far enough), the last resort will be to adjust your pricing to increase revenue and improve cash flow.

We've routinely worked with companies that have undertaken a hybrid of marketing and business plan models to increase margins and sales simultaneously. We have consistently found that properly communicated price increases that focus on your unique sales proposition are very successful in delivering higher margins without impacting customer loyalty.

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