How do you manage the pay for your business?

Increases in minimum wage levels can be a challenge for businesses. They mean higher labor costs if you employ minimum wage workers, which can mean lower profits. Even higher skilled and better-paid workers may feel they deserve more to stay above “unskilled” rates. Many union contracts require a guaranteed pay above state or federal minimum wage. A higher minimum wage pay can also drive up costs as suppliers manage labor expenses.

There is no single way to deal with an increase in the minimum wage, but there are principles and strategies that may help.

Analyze the real impact

Before taking any action, analyze the percentage of overall expenses that labor represents and then consider how much a specific increase will affect the business. If, for example, labor is 30% of costs and a minimum wage increase will push labor up by 10%, then you face a 3% total increase in costs. Knowing the actual amount helps you design proportional action.

Delight your customers

One survey by the Harvard Business School NOM Unit shows that minimum wage increases raised the chance restaurants would go out of business, but only if the restaurant had indifferent ratings by consumers. Although restricted to the food industry in California, it may suggest that when customers love your business, they will more likely continue to come to you, even if they cut back their overall spending.

Reexamine staffing

Staffing, like anything, can become a habit. Ask whether you still have the right staffing levels. Too much can drive up costs unnecessarily. Too little may discourage buyers. Maybe use of temporary or even contract workers could help reduce overall costs. A higher caliber of worker may be able to do more and ultimately save money.

Consider adding self-service

You’ve likely seen shelf-checkout in grocery and big box stores. That’s an example of customer self-service. The concept may be applicable to other areas of your business. For example, a strong website with enough useful information might offload customer questions. Or e-commerce could help handle simple purchases, freeing employees to do more valuable work.

Test pricing changes

Many business owners are understandably skittish about raising prices. There is the chance that you could drive business away. But staying with a set of prices out of fear can be poor business. Try testing prices of various items. Look at products or services where there is less competition. Maybe you can raise prices at certain times, like a restaurant charging more for breakfast on a weekend than a weekday. Or look at ways to improve cross-selling and add-on sales, so instead of increasing individual prices, you get a higher average order size.

How do you work with a big business?

Despite the differences in scale, partnerships between small and large companies can be effective and beneficial to both. Larger firms will work with small businesses in a number of ways, including:

• providing small companies with technology they need
• license innovation or products from smaller firms
• use small businesses as a vendor
• provide smaller businesses with access to new , larger markets
• acquire smaller firms
• invest capital in small businesses

For example, Nottingham Spirk focuses on providing innovative product solutions for larger client companies. Its successes over the years include the Pepto-Bismol® dosage measuring cap, the Dirt Devil® vacuum, and the parentally ubiquitous Little Tikes® toddler cars. A counter-example from the world of giants is Procter & Gamble^TM, which manages hundreds of relationships with small companies that act like innovation engines.

Akron-based Ecology Coatings^TM, which makes protective and decorative coatings for industrial products, used partnerships differently. Early on, the company had technology but no sales and marketing, so it licensed its products and technologies within specific market segments for annual cash and breathing room to build its own marketing and sales infrastructure. DuPont® got the North American automotive business. Ecology Coatings^TM passed a propane tank rental company client and all propane tank work to a major coatings company for a six-figure revenue stream.

But don’t be pie-eyed about opportunities, as there can be potentially big downsides to working with larger firms. Payments can run late, with 90- to 120-day terms being common. Corporate culture may be inflexible and any decision process can involve many people and take much longer than small businesses are used to. Large retail chains can be demanding, for example, on how you do business and how you package products. Consequently, this can lead to lower margins.

To explore the possibilities of big business partners, one possibility may be with matchmaking programs that help bring small and big companies together. The Women’s Business Enterprise National Council has programs that connect corporations and governments to women-owned companies. The Small Business Administration often runs matchmaking events during National Small Business Week.

Many large companies have supplier diversity programs for companies that are minority-, disabled-, woman- or veteran-owned. Networking can also be an excellent tool, as someone you know may be able to direct you to opportunities.

If you do get wind of partnering opportunities, here are a few things to keep in mind:

• Look for partners that make strategic sense, and be picky about the deals you do.
• Be ready with a strong pitch and your financials, because the big company wants to know that you’ll be stable and predictable.
• Remember that managing any partnership takes time and energy; be sure to keep your focus.
• Stay flexible and avoid overly broad, exclusive deals that could cut off future opportunities.
• Understand what you and they get out of a partnership.