Los Angeles just increased their minimum wage on July 1, and we’re set for more increases over the next 4 years. Businesses that haven’t planned – or won’t plan for increases in the future – will be the ones whose operations are most disrupted by the increases. There’s no reason for your business to be one of them. You can take steps today to plan for your increased payroll.
You’ve Got This
Maintaining your cool is going to be the basis for all the other actions you take. There’s no reason to panic and get into the “this is never going to work” mindset. It’s going to affect your cash flows, but there are ways to plan for it so that you won’t even notice the increase. However, to do that, you need to stay calm and go over your financials with the belief that there is a way to increase wages without too much pain. It’s also useful to remember that everyone is affected by the minimum wage increase. That means your competitors are in the same position, and the best way to set yourself apart from them is to be prepared.
Review Your Finances
If you’re worried about minimum wage increases, the first activity on your list should be reviewing your finances. Look for anywhere you can cut costs and discuss them with your bookkeeper. Many times, businesses have ways of increasing cash flows that are hiding in the financial statements. Your firm may have an excessive amount of receivables that could be collected, or there could be unnecessary expenses that you can trim to meet your increased payroll obligations.
Bookkeepers will often know if a business can handle wage increases just from their familiarity with your financial statements. It’s possible that your bookkeeper will tell you that you can absorb the minimum wage increases without any action on your part.
Cloud-Based Technology
As a cloud bookkeeper, I have a special place in my heart for cloud-based technology.
On the financial side, talk to your bookkeeper or accountant about QBO and Xero and what apps integrate with them. Float is a wonderful app that creates cash flow forecasts by pulling information directly from your books. You can identify any cash crunches resulting from wage increases and take action ahead of time.
Expensify is another useful program. It generates expense reports that you can review to see how you can cut down on expenses. If you’re worried that there may be some area where you’re spending too much, Expensify will allow you to see it.
Refinance & Renegotiate
If you have any business loans, review them to see if it’s possible to get a lower interest rate. If your financial statements were prepared incorrectly when you submitted the paperwork for the loan, it’s also possible that you could have been charged a higher rate than you should have. In the process of reviewing your financials, you should be to determine if your position has improved since the loan was approved.
Also, if you are dealing with vendors, you can pull reports from your accounting software to see how much you’re spending. If you’re spending a significant amount with one vendor, it’s possible to get a discount based on the volume of your transactions. Many vendors will offer discounts of 1-3% for high-volume customers.
Minimum wage increases are scary for some businesses, but they shouldn’t be. Every problem has a solution, and if you’re stressing about this one, you can find a way to meet payroll if you’re willing to work at it. Put in the time and effort to address the issue, work closely with your bookkeeper to find a solution, take the necessary actions, and you’ll be able to rest easy.
Email me at ben@theincomedepartment.com to schedule a free 30 minute consultation about the bookkeeping needs of your business.
Ben Warga