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Graham Acreman, President | Stellacon Business Solutions
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Graham Acreman, President | Stellacon Business Solutions
Ontario’s minimum wage increased 21% January 1, 2018. Prudent businesses have already developed plans for how to mitigate the impact of the increase. Some solutions have been more popular than others.
Already there have been public call-outs of owners who are thought by some to be offside in how they are dealing with the impact of the change. Some are weathering the storm, others are quickly backtracking, and others are still trying to figure out their next move. Read How to Mitigate the Effects Of Ontario’s Minimum Wage Increase.
The reality is, businesses exist to provide value and make money. In the process, they provide jobs and opportunities for employees. If an employer is not earning a reasonable return on their investment for any reason they will not remain in business long.
Salary costs are often the single largest cost to a business. The impact of the minimum wage increase will vary by industry. To get a better understanding of the impact let’s take a look at a case study using a company that has a 60% labour cost and predominantly employs minimum wage workers. This means for every $1 sold, 60% of the revenue is labour related.
This is our case study showing a snapshot of their financials before the minimum wage increase:
In the above, the business has $1,000,000 in annual sales. Their labour cost is $600,000 (60%), other costs are $300,000 and their remaining profit is $100,000.
Now we take a look at the numbers after the effects of the minimum wage increase:
The only change above is that the labour cost has increased 21% (now represents 73% of the total sales). This single change has taken a business that was profitable and now brought it into a loss position. Obviously this isn’t good so what is a business owner to do?
Options can include:
Most employers will likely use a combination of these options.
Returning to our case study, if our business owner chose to increase prices in order return to the same level of profitability then our numbers would now look like this:
Keep in mind, our business is not selling any more volume they have simply increased their prices by the amount necessary (12.6%) to maintain the same level of profitability.
In the case of Tim Hortons, price increases of 12.6% would look like this:
Of course a business owner choosing this route would have to consider whether their customers would be accepting of a 12.6% increase. And in the case of Tim Hortons, this is not a decision that that franchise owners have – their pricing is mandated from their head office.
Ultimately they had to do something as has been widely reported in the media. I suspect in time we’ll see some pricing increases and increased automation.
In the meantime, as business owners consider their next move, they need to be mindful of the potential impact and ramifications of their decisions. You must carefully strategize how you are going to educate your employees. That is, how are you going to sell it to them? An effective strategy can significantly improve your likelihood of success.
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Graham Acreman, President | Stellacon Business Solutions
In my last post we discussed the tentative 32% increase in Ontario’s minimum wage. We also reviewed the critical importance of why you need to perform an “Impact Assessment” to understand how it will affect your business. READ HERE.
Today we’re going to discuss ways of mitigating the impact. Let’s use a simple example based on the following:
Current annual revenue = $1,800,000
Current annual labour cost = $950,000
Your maximum risk = $304,000 (32% x $950,000)
This would be based on all of your labour cost being at the current minimum wage of $11.40.
Your minimum risk = $0.00 (0% x $950,000)
This would be based on having no staff today below $15.00. If this is the case, congratulations. You’ve ducked a bullet.
In all likelihood you will fall somewhere in between. For illustration sake let’s assume that you’ve calculated your increased cost to be $165,000.
Assuming your revenues stay flat and no other costs increase, you now have to determine what to do about the extra $165,000 in costs.
When it comes down to it, you’ve really got five options:
Let’s take a closer look at each of these options.
Option 1: Sucking it up is a pretty big pill to swallow. The reality is – this is the default option. Most of the business owners who will suck it up will be those who didn’t take the time to assess the impact and deal with it proactively.
Option 2: Increasing your prices is a likely option for many business owners. In the case above, with revenues of $1,800,000, a business would need to increase prices 9.2% to negate the cost of the increase. This increase does not impact profitability in any way – it simply maintains it based on the increased labour expense.
Option 3: Frequently, owners have one or more employees that they know they should let go but for a number of reasons they’ve been hesitant to do so. Now may be the time to act. If you’re already running a tight ship then this is likely not an option.
Option 4: There are a few ways of reducing costs. Labour expenses can often be reduced by automation. Now may the time to investigate and invest. A regular expense review is also definitely on my list of best practices and there’s no better time than now. Many times business owners find they are paying for items that no longer make sense. There was likely a good reason at one time for any expense but as businesses evolve, some things become redundant or just aren’t used anymore. And for those expense items that you still need, this may be the best time to negotiate lower prices from your suppliers.
Option 5: The most likely option in my opinion is that most pro-active business owners will offset the increase in costs through a combination of the above.
The truth is, the proposed increase in Ontario’s minimum wage is beyond your direct control. How your business deals with it is up to you.
If you need assistance with assessing the impact or strategizing a solution we would be happy to assist.
Ontario Business Owners – are you ready for disruption? If not, you could be facing a knock out.
Ontario is now less than 6 months away from unleashing one of the largest disruptors that many business owners will ever face – a substantial increase to the minimum wage.
For many business owners, particularly those in lower wage industries (think retail, general services, non-trade blue collar, etc.) there is a big hit coming and you need to be prepared. If you didn’t already know the General Minimum Wage will be increasing from the current $11.40 to $14.00 on January 1, 2018 and then to $15.00 in 2019. This represents a 32% increase over the next 18 months.
Have you taken the time to figure out how this is going to impact your business? Have you strategized about how you are going to handle it? Failure to do so may lead to dire consequences including the loss of your business.
In case you think this is a case of crying wolf, let’s take a look at a couple of real world examples:
For purposes of a simplified illustration, we’ll make the following assumptions:
Revenue = $2,000,000 per year and remains flat over the next 2 years
Non-labour expenses (all other expenses) increase 2% each year
In Example 1 below, the 2017 “Labour cost” = 40% of revenue. All other business costs = 50% of revenue leaving the owner with a 10% profit. In 2017 this will equal $200,000 pre-tax.
Moving forward to 2018 with flat sales and a 2% increase in non-labour costs together with Phase 1 of the minimum wage increase, the 10% profit has evaporated and the business has taken on a small loss. In 2019, this business owner is now losing almost $100,000.
Let’s look at another example with a business that now has a 60% labour cost:
Again, in 2017 they have a $200,000 bottom line but one year later that 10% profit is wiped out and you have almost a $100,000 loss. One year after that there is a $200,000 loss.
Now you may be thinking, “I have some employees working at minimum wage but many are being paid more than that. After all, I give my employees an increase every year”. That may be true. The reality is, every business owners impact will be different. But consider the following pay structure which is based on starting your employees at the current minimum wage and then providing a 5% annual increase:
With the effects of the minimum wage increase Jan 1, your new starting rate becomes $14.00 per hour. Your challenge is, all of the rates on the above pay structure are below the new minimum – you will need to increase everyone. And, do you think your employees with 2 years or 5 years tenure are going to be happy being paid the same amount as a new hire? You’ll need to make some further accommodation here too.
The minimum wage increase won’t affect every business but it will affect many businesses. As a business owner, you need to understand if it will impact your business and if so, to what degree.
“Signs, signs, everywhere there’s signs” – Five Man Electrical Band
I spent the past weekend with friends and family visiting the beautiful village of Lake Placid, NY. At one point, a friend and I were checking out some of the local stores along the main drag. One of these was a sporting goods store that featured running shoes and related gear.
Before entering, the first thing that caught my attention was a sign on the door advising “No Drinks”. Ok, it’s not that unusual and having just purchased coffee, we found a spot to set our drinks down before proceeding inside. Upon entering, the next thing that caught my eye was a sign indicating, “We do not allow people to take pictures of our merchandise.” I thought this one was a bit unusual. I briefly pondered what potential issue there could be in taking pictures of shoes but nothing came to mind.
Before I go on, it’s important to know that his was not a big store; I’d guess 800 – 1,000 square feet. There were two employees inside and my friend and I were the only customers.
A few steps into the store and another sign caught my attention, “Don’t open the packages of socks”. I had already categorized this establishment as somewhat customer unfriendly and wasn’t interested in spending a dollar there however, my friend continued to browse so I continued to look around.
Behind the cash was a sign indicating, “No Refunds.” The final kicker for me was the sign posted beside a display of sunglasses; “If your kids scratch the lenses, you have to buy the sunglasses.” Wow!
Browsing completed, we walked towards the door that had a small sticker affixed encouraging people to, “Shop Local.” Maybe we do – but not with you!
Though I would take bets that your signage isn’t anywhere near as bad, I’d encourage you to take a fresh look at it to ensure that it’s sending the right message. Is it cold and authoritarian or is it warm, welcoming and helpful? The signage you have posted in your business or work area is a reflection of your attitude towards your customers.
Postscript: We continued walking a few more blocks and visited another sporting goods store. This one only had one sign that stood out – a huge one posted on the wall behind the cash registers proclaiming, “Enjoy Life!”
Many business owners who want to grow their businesses make a decision to hire a salesperson. Unfortunately, if the owner doesn’t have a sales background or if they’ve never hired a salesperson, they often make big mistakes. I’ve seen it happen countless times. These mistakes cost owners significant time and money and cause a lot of frustration – I want to help you avoid that.
Mistake #1 -Assuming That All salespeople Are the Same
Inexperienced owners often believe that all sales people are created equally and all have the same “Sales” skillset.
Let me tell you – there are many different types of salespeople:
Someone selling cell phones at the local mall is a salesperson;
Someone selling credit card processing services is a salesperson;
Someone selling new cars is a salesperson;
Someone selling consulting services is a salesperson;
Someone selling missile defense systems is a salesperson.
Though the above are all salespeople, that doesn’t mean that any one salesperson would be effective in all of these positions. Each one requires a different experience level, educational background and skill-set. Make sure the one you hire has comparable sales experience.
Mistake #2 – Not Taking the Sales Cycle Into Account
A salesperson who is used to making several sales per day is often going to find themselves out of their element if they get into a sales role where they may be only making one sale per week. Or month. Or year. The longer the sales cycle, the more patience is required as is a different skill set. Salespeople cherish the thrill of a sale and if they are used to getting that thrill more often or more quickly it can be a tough adjustment if they find themselves in a sales role with a longer sales cycle.
Mistake #3 – Not Setting Sales Goals
Believe it or not, I’ve seen many instances where a business owner has hired a salesperson and but not set any goals. “I want to grow my business” or “I want to increase sales” is not specific enough. How much do you want to grow your business or how much do you want to increase sales? Specifically. You need a number.
Once you have this number, ask yourself, “What is it going to take to get there?” This is where you start looking at numbers like:
A salesperson should be able to make 500 calls per week;
This should produce 10 appointments per week;
The closing ratio in our industry = 40%
Therefore, based on the above, 10 appointments should turn into 4 sales.
Keep in mind that the numbers above are examples only and need to be customized for your business. Your business model is likely very different.
Carrying on, the question you need to ask yourself is, “Will the number of sales per week produce the growth I’m seeking and will it cover the increased cost of hiring a salesperson in the first place?”
If it won’t, then you need to re-examine the numbers or strategize a different approach.
If it does, you now know what metrics need to be achieved to be successful.
Mistake #4 – Not Paying Your Sales People Strategically
Two things here. First, a business owner is normally going to need to pay a combination of salary and commission. In most cases, you want the salary to be approximately 40 – 60% of the total target compensation and the balance from commission. Be wary of any prospective salesperson who is pushing for a higher percentage.
The other is this – never pay a flat percentage of the sales. Ever. Paying a flat percentage creates little incentive for over-achievers but is a big savior to under achievers. You need to create a commission program that will accelerate commissions as your salesperson first achieves and then exceeds the sales goals. Conversely, it should de-accelerates if they are under-performing. The reality is, if your salesperson is underperforming then they are negatively impacting the business case you developed which is what led to their hiring.
Mistake #5 – Not Effectively Managing Your Salespeople
If you don’t effectively manage your salespeople then you will fail. Your salesperson will spend their time doing what they think they should but this will seldom be in alignment with your business goals and metrics. I can tell you exactly what will happen:
They won’t achieve success, they’ll sense your growing frustration, they’ll get discouraged or fed up and quit.
You’ll get impatient and fed up and end up firing them.
Either way, the whole process just cost you a lot of time, money and grief. The worst part is, it’s totally your fault – you weren’t doing what you should have been doing – managing your salesperson effectively.
Compliance with Canadian Privacy Laws and the Personal Information Protection and Electronic Documents Act (PIPEDA) is not optional – if your business is not compliant your company is at risk.
1) Define what personal information you will collect, where you will store it, how you will share it and ultimately, how you will destroy it.
2) Collect only the personal information that your business actually needs.
3) Advise customers of video/CCTV surveillance.
6) Limit access to the information you collect. It should not be readily available to all employees and access should be monitored.
7) Minimize the collection and retention of personal information. If you no longer require the information then you should properly destroy it.
8) Protect personal information by securing it in locked cabinets, password protected files or by encryption.
9) Ensure you appoint a “Privacy Officer” who your customers and vendors can contact with any questions.
10) Don’t ignore requests for access to personal information.
To assist with compliance, the Office of the Privacy Commissioner of Canada offers a “Privacy Toolkit for Businesses“. This toolkit helps businesses understand what is necessary for compliance and provides a guideline for how to get compliant.
If you’d like some help we’re only a phone call away. We perform compliance audits, gap analysis, and work with you to develop Privacy Policies.
Businesses hire consultants for 4 main reasons:
1) They require subject matter expertise that they don’t have in-house.
2) They require additional bandwidth to facilitate an initiative.
3) The business owners and/or management are seeking independent, strategic validation of a course of action they plan to take. In this case it’s about getting a second informed opinion.
4) The owners and/or management are seeking a 3rd party scapegoat for an unpopular course of action they are planning to take (“The consultants recommended this course of action”) or don’t want to take (“The consultants advised against it.”).
Ultimately, consultants are hired on the basis that they are going to provide tangible value from either a financial, operational or political nature.
This is a common statement spoken by many struggling business owners.
Business owners work hard every day. They put their hearts and souls and countless hours into their business and always seem to be busy – sometimes too busy.
Often it feels like there’s just not enough time to get everything done. Though they’re busy, business owners may feel they aren’t accomplishing anything or moving their business forward. They may feel they are continuously struggling and frequently asking themselves, “What am I doing wrong?”. If they’ve felt like this for a while then burnout may be looming and personal relationships may be suffering. This creates a lot of pressure. They know they have to do something but they don’t know what – and they feel stuck.
The reality is, as business owners, being busy is good but it doesn’t in itself pay the bills or grow your company. Think about it – is your primary goal to be busy? Is it to grow your business? Or is it something else?
You need to figure this out. If your goal is to grow your business then you will develop a course of action to achieve this. If you’re happy with the size of your business but want to be more organized then that will warrant a different course of action. Your goal determines your course of action. And remember, it’s impossible to achieve a goal if you haven’t taken the time to set one.
Ultimately, you need to determine your primary goal. The next step is to develop a plan which will provide the framework for how you’re going to achieve it. Finally, you’ll need a system to monitor your progress.
And the real benefit? Once you’ve taken the time to set your goal and develop a plan you’ll feel much better.
Peter, the owner and President of a local moving company, had an issue. New sales were steady and customer retention was good but the company’s bottom line was slowly declining. Month after month. Everyone in the company appeared to be working hard. The team was focused on looking after their customers. So why were profits in decline?
In meeting Fred, it was apparent that he cared about the company. His stated focus was on looking after his customers and making sure everyone was happy. While these were noble goals, they were only part of his overall responsibility. The reality was that operations were loose. Specifically, labour force costs were not being well managed. The real issue? Fred was unaware of the impact that he could have on the company’s financial performance.
This wasn’t Fred’s fault though – he was focusing on what he knew and what was important to him. He had never been trained on why it was necessary to keep tight controls on his labour costs and more importantly, how to do so.
This scenario is not unique and happens every day. Regretfully, it can kill a company quickly if it’s not identified and fixed. Fortunately, the missing skills in this case are all teachable skills. Proper coaching together with regular, structured follow up was ultimately the successful solution for Fred and Peter.