How to Mitigate the Effect of Ontario’s Proposed Minimum Wage Increase

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.

Protecting your profitability

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:

  1. Suck it up.
  2. Increase your prices.
  3. Reduce head count.
  4. Reduce other expenses.
  5. A combination of the above.

Let’s take a closer look at each of these options.

Check out your business

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.

We help business owners solve problems.

For more information contact:
Graham Acreman, President | Stellacon Solutions
(613) 263-1010

Business Detective – Case of the Declining Profits

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?

 Discussions with Peter revealed that he had been running his business for twenty years. He had many interests outside the company and had been attempting to step away from day-to-day involvement with the business. Ultimately, we wanted his management team to run the  business.   To this end, six months ago he had promoted Fred into the role of Operations Manager. Fred was Peter’s best driver and a model employee. Peter figured  that if everyone could be like Fred then the company would do well.

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.

Need help with your business? Want to increase performance & your bottom line?  Contact us today:
Tel: (613) 263-1010

10 Business Mistakes That You Must Avoid as a Business Leader

Being a business leader often looks glamorous from the outside but you know the truth.  Though it can be rewarding on many levels, at times it can also be pretty tough.   As a business coach I provide guidance on how organizations can improve many facets of their sales and operations.  I also see a lot of the same mistakes over and over and I want to help you avoid them.  Avoiding just one will save you a ton of grief and money.

Business Pitfalls

#1 – Working to much IN your business and not spending enough time ON your business.  

Business owners often find themselves totally immersed in the day-to-day operations of their business. This usually comes at the expense of growth and attainment of your business goals.  It’s imperative to block out some time each week to focus on the strategy of your business.

#2 – Hiring new sales employees based on their great personality but with the wrong type of sales experience.

There are many different types of “Salesperson” profiles and you need to determine which specific type you need for your business.  All sales experience is not equal but many business owners overlook this reality. Do you need a hunter or a farmer? Do you need a solution seller or an order taker?  What is the value of your average sale and how frequently are you expecting sales to be made?  These are just a few of the factors that need to be considered.

#3 – Overbooking or taking on more business than you are able to handle.

It’s imperative to build up your operational capacity before you take on too many customers.  If you don’t, your customers will suffer and you’ll be miserable knowing that you haven’t delivered the level of service that you’re accustomed to providing.

#4 – Building systems and processes that aren’t scalable.  

Systems and processes are essential for any business. The reality is, what worked well when you had 10 customers or 50 customers may not work so well when you have 200 or 500.  Ideally, when designing systems you need to consider where you plan to be 3 years and 10 years down the road.  Will your systems support your anticipated growth?  Are your systems scalable? If not and you choose to proceed, at the very least you’ll do so on an informed basis so that you can plan for the growth before you need it.

#5 Failure to adapt and change in the face of disruptive technology.

You need to be aware of the transformations taking place in the world around you -specifically, all of the disruptive technologies trends.  Uber and Airbnb are the two most commonly referenced companies that have disrupted existing industries.  Just ask any taxi driver or hotel owner. Artificial intelligence, IoT software, digital currency and online exchanges are only a handful of the disruptive technologies that are transforming markets and impacting the business world.  You need to be alert and thinking, “How will it affect me”?

#6 – Not communicating with your team.

Your team is a reflection of their leader – that’s you! Think they’re doing a good job?  Tell them.  Show your appreciation; especially when they handle something particularly well or bring forward an idea – whether you adopt the idea or not.  Are they doing something wrong?  You need to coach them.  Don’t ignore their behavior and hope that it will get better. It never does.  Performance feedback should be ongoing; not just once or twice per year.

#7 – Not terminating an employee when you should.

You are not doing anyone a favour in keeping an employee longer than you should.  If an employee is not pulling their weight or is causing challenges within your organization then you need to quickly rectify the situation or let them go.  Otherwise, you will damage your company.  The situation will drain on you emotionally, it will not go away, and an under-performer will quickly bring down the morale of your other employees.

#8 – Not defining and measuring Key Performance Indicators (KPI’s)

Every business should be measuring at least a handful (or more) of KPI’s. Specific ones to be measured will vary by industry and tied to the goals of the business but they may include:

  • average sale amount
  • average sales per salesperson
  • average life of a customer
  • monthly revenue
  • customer retention rate
  • labour cost as a % of revenue
  • average # of deliveries per day
  • average quantity processed by hour
  • average labour hours project

#9 – Not protecting your business information and systems.

If your place of business caught fire tonight would you be prepared to carry on tomorrow?  What if your computer systems were infected by a virus or ransomware?  What if your server crashed or got stolen?  No one thinks it will ever happen to them yet every day these issues affect numerous companies.  Take the time and develop a plan that will protect you, your customers, and your employees.

 #10 – Not hiring great people.

Hire 10’s.  Did you know that 10’s usually hire other 10’s?  On the other hand, 8’s usually hire 6’s & 7’s because they’re intimidated by anyone smarter than themselves.  You want motivated, enthusiastic and smart people on your team.  It’s amazing what a group like this can do.   Steve Jobs said it best, “It doesn’t make sense to hire smart people and tell them what to do; we hire smart people so they can tell us what to do.”  Invest in the best.

Graham Acreman is President of Stellacon Solutions, a business coaching & consulting firm.  Stellacon works with business owners to build stronger, more efficient, and well-structured businesses that are well positioned for growth.

Contact Graham anytime for a complimentary consultation.