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How long will your business remain viable as wages rise?

By Chris Dawson June 5, 2017 - 7:32 am

With the General Election this week, it’s natural that people are looking at the different party policies and wondering how they would impact their business. Two particular policies have the potential to affect many small businesses – Corporation Tax (which some parties want to raise and other’s lower) and the Minimum Wage (which will rise year on year regardless but some parties are mooting a £10 per hour minimum by 2020).

A rise in corporation tax and increase in the minimum wage hits a small business twice (although some parties have suggested there may be transitional help available). There comes a point however where the wage bill for a small business reduces their profit to zero or even a loss, especially those businesses who operate on razor thin margins. It’s not just the wage bill, there are all the other costs of employment not to mention National Insurance and Pension payments.

It may be that your cost of manufacturing will rise, or it could be purely the cost of running your warehouse and picking and packing orders becomes unsustainable. As your labour cost rises, you either need to become more efficient or you will be forced to put prices up.

Efficiencies can come from automation, either software solutions to remove manual processes or mechanical solutions such as warehouse conveyor and packing machines. Whilst there’s an investment cost to put software or machinery in place, there are solutions which can enable you to reduce staff or preferably grow your business without needing to employ more staff.

What’s more difficult in today’s world is increasing your prices. It may be easier in off-line stores to hike prices, but online there is so much competition that it’s often not an option. Even if all UK merchants were to increase their prices, there will come a point when overseas sellers in countries where labour costs are lower will simply undercut you until you’re forced out of business.

Looking to the future, there are very few people who in principle would say their valued employees aren’t worth paying £10 an hour… they just question if their business could afford it. The worrying thing I hear from many businesses is that they say they would have to lay staff off and do the work themselves, which ultimately will shrink a business rather than grow it.

Will you struggle to remain profitable as wage bills rise? Is the work that you and your employees worth £10+ per hour as if not then your business may not survive much longer. What can you do to cut costs and increase prices and margins to ensure your future success?

  • Stuart
    2 years ago

    Until we realise that increasing minium wages all the time isn’t the answer the quicker we will get things sorted for people.

    Not only do people not realise that every time the minimum wage goes up, prices go up, so it in effect there is no wage increase. But it’s also the fact that when the minium wage goes up you have to put everyones salary up as the difference between levels of staff becomes too narrow again.

    There is some bigger win’s that no one talks about, clamping down on VAT fraud online, chinese imports, customs duties etc etc.

    Until we realise that we can’t keep loading up small business with all the increases and that small businesses often carry the bulk of the country of employment in this country the quick we will all winners!

  • Patrick
    2 years ago

    A ‘greedy’ ‘rich’ (by the definition of many) business owner works 70 hours a week. He pays himself a ‘rich’ man’s £40000 per year.

    He is on…… £10.99 an hour.

    Many many small business owners do 70 hours per week. If they don’t pay themselves £10 an hour when they have to pay their staff it by law (1) will they continue or lay off staff (2) if they continue what protection will Mr Corbyn put in place to ensure they earn minimum wage?

    This is a multi faced coin…. It doesn’t help when politicians paint it as them and us, without allowing for those in between.

  • 2 years ago

    I remember clearly before there was even a minimum wage of any kind, and the same comments were made – the minimum wage would be the end of small businesses. It didn’t happen and won’t again – there are many small businesses paying £10 per hour now. It won’t be an easy transition but at least it will mean that fewer big businesses will be subsidised by the state in the form of Working Tax Credits.

  • Phil Green
    2 years ago

    I already pay my staff £10 an hour but the increase in Corporation Tax will kill us. We will close down and lay all the staff off

  • Toby
    2 years ago

    Sadly Laura you are correct and incorrect… when the min wage first came in for many it wasnt a huge increase in wages. Other things were lesss too… power bills, insurance, stock costs, fees and of course we didnt have the pension thing. Today we small businesses have seen everything spike, the big move to online has led to mass discounting and free postage, both of whcih are easier for the big guys who could afford higher wages anyway.
    This sadly is a sledgehammer to crack a nut approach. Yes it will hit big business a bit…. but lets not forget that the majority of people employer in the UK are employed by small to medium businesses, who are set to be hit hardest!
    So tell me how this is a good approach? We have already pulled back from expansion and the employment of more staff as we simply can’t afford the every growing costs and the discount competition from abroad, big business and of course the non registered businesses trading as personal sellers! So well done to the own goal here… thats a couple of people not being employed already.
    Same old thing im afriad froma certain party…. headline vote winners that they know most wont look deeper into.
    I know it’s awfully simple, but why can’t the law be changed to stipulate that companies showing profits of over ‘X’ must pay a enhanced min wage?

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