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The low down on a higher minimum wage: What it means for small business

Two dollars and forty cents may seem like small change. But for Ontario businesses, this amount could spell the difference between staying successful and struggling to stay afloat.

That’s because this year, the minimum wage for the province of Ontario jumped $2.40 an hour, from $11.60 to $14 – a figure that’s set to go up once again in 2019 to $15 an hour. A number of other provinces in Canada – namely Alberta, Quebec and Prince Edward Island – are expected to also increase their minimum hourly wages in 2018.

These changes are challenging for any enterprise, but especially so for small businesses, which typically operate with tight budgets and skeleton staffing.

Adding up the impact of a minimum wage increase

So lets do the math. According to the Organization for Economic Cooperation and Development – a global organization that promotes policies for improved economic and social wellbeing in countries around the world – Canadians on average work about 1,700 hours a year. Multiply this total by $2.40 and you get $4,080.

For a small business with five employees, that adds up to $20,400 more that they must come up with each year. The number goes even higher when you factor in business owners’ contributions to their employees’ Canada Pension Plan, which is based on a percentage of total annual salary.

How will your business deal with the minimum wage increase?

If you’re a small business owner in Ontario, you’re probably worried about how the minimum wage increase will affect your cash flow, profit margins and – let’s face it – your company’s ability to survive and thrive in the short- and long term. Like most entrepreneurs, you’ve probably already sat down to consider your options. For instance, you probably considered:

  • Increasing your prices. Small businesses often try to keep their prices down for as long as they can to avoid losing customers. With the significant jump this year in your operating expenses, now may be a good time to hike up your prices. Just make sure you communicate these price increases in a way that doesn’t make your customers feel like they’re bearing your burden from the higher minimum wage.
  • Downsizing your team. This is a hard call to make for any small business, where the contribution of every employee counts. Before you take this step, do a cost-benefit analysis: will letting go of one or two employees actually help or hurt your bottom line? How will this affect your ability to consistently deliver a quality product or service? Could the savings from this cost-cutting measure end up costing you customers in the end?
  • Doing more of the work yourself. Perhaps you’re thinking about reducing your employees’ hours and taking on some of their responsibilities. Consider this: if you start spending more of your time working in the business, how much time will you have left working on building and growing the business? Small business owners are already starved for time, so going this route may not be best for your enterprise – or for you.

So where does this leave you?

Ontario’s minimum wage increase delivers a tough blow for businesses – the numbers and facts make that clear. As a small business owner, it’s important that you take steps now to address and plan for this increase, as well as for the next one that’s scheduled to take effect in 2019.

The first step: Sit down with a professional who can go through the numbers with you and help you develop a strategy going forward. Talk to an accountant who knows your business and understands your cash flow patterns. Brainstorm with a business or marketing strategist about ways to bring in more revenue.

Could higher wages sink your business? Speak to a restructuring specialist

It’s also a good idea to speak with a specialist in business restructuring who can analyze the long-term impact of the minimum wage increase on your company, and help you explore options such as refinancing or selling part or all of the business. If you think your business may not be able to cope financially with the higher wages you are now required to pay, then you’ll need to discuss the possibility of filing for a Division 1 proposal or bankruptcy. A licensed insolvency trustee can help you with this.

Higher minimum wages are here and now so don’t sit and wait

As with any wise course of action, timing matters when it comes to your strategy for dealing with the minimum wage increase. The sooner you act the better, which means you need to come up with a plan of action now. If you haven’t done so already, reach out immediately to an experienced professional who can help you and your business cope with the new reality of a higher minimum wage in Ontario and, soon, in other parts of Canada.

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Ontario’s minimum wage increase has an impact on Small Businesses was last modified: February 1st, 2018 by Licensed Insolvency Trustee