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Minimum wage hikes can spur business owners to rethink how they run their companies

Jon Milazzo (left) and Lori Pomeranz, owners of Retrofit Home in Seattle, met with their employees and brainstormed new ways to increase sales.

With the Ontario minimum wage jumping to $14 an hour in January, small business owners need to start looking at everything from pricing to staffing to keep payroll pressures in check. The sharp increase in costs could scuttle some businesses. If handled intelligently, though, some business owners could come out ahead.

"The smart business people can take this forced minimum wage, sick time and other things and actually leverage it to their advantage," says Steve Burke, an advisor with the Small Business Development Center in South Seattle, Wash., where the minimum wage has steadily been increasing toward $15 (U.S.) for several years. By Jan. 1, 2019, Ontario's minimum wage will be $15 an hour.

"Rethinking the type of employees they hire, the human-resource management systems they employ … they can get greater productivity and efficiency in their business," says Mr. Burke.

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The experiences of business owners in jurisdictions such as Seattle and the surrounding state of Washington, where the minimum wage has also increased, can be instructive for Ontario business owners.

"It's really easy to become angry and then to start acting in injudicious ways," says Kevin Hoult, who owns a nail salon in Port Angeles, Wash., with his wife and advises fellow business owners through that town's Small Business Development Center office. "My wife and I had to sit down and say, 'It's happening to everybody, it's a reality.' Being a business owner is problem-solving, and this is a problem and we have to solve it.'"

With only a handful of full-time employees, Mr. Hoult could hardly have cut back on staff. Turning them into commission workers, commonplace in the beauty industry, was unappealing. He decided instead to boost the productivity of his employees, making their hourly labour more valuable to justify the increased pay.

First, he created an employee handbook, setting out specific job descriptions and formalizing tasks. Defining how long tasks should take – "the nail prep takes seven minutes, the massage takes five minutes" – allowed him to speed up each session and book more clients each day.

"We've been able to add duties for times when clients aren't there that are formal and documented," says Mr. Hoult. "You know, dust off the nail polish bottles, refill the supply bottles, fold the towels – things that my wife used to have to come up with and assign, now it's part of a regularly scheduled daily regimen."

An electronic key-card timekeeping system allows him to track employee hours more closely – something that's led to an 8- or 9-per-cent reduction in the number of hours claimed on time sheets, he said. The more strict regime could, in other circumstances, lead to disgruntled staff. But with the increase in hourly wages, Mr. Hoult's employees have been willing to be more focused with their time, he says.

There's also the matter of finding ways to reduce unproductive labour. Managers might look at scheduling and rethink how shifts are staffed, perhaps even the hours of operation, says Chris Maykut, who owns three organic food-focused cafes in Seattle.

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"For the first time ever I would sit with my schedulers and my general manager and my chef and go, 'All right, this is how many hours you have to work with this month, you can't go above that, this is it,'" says Mr. Maykut.

He managed to keep staffing levels largely the same by "snipping around the edges," he says. "We raised prices a little bit, and cut back some eight-hour shifts to six-hour shifts, and we would cut maybe a fifth person off Sundays, and the general manager had to pitch in a bit more on the floor when it was busy."

Another response to shrinking margins is focusing on the sales side. Lending Loop, a Canadian small-business finance organization, conducted a survey over the summer of small businesses in Seattle and San Francisco to learn how they were managing the minimum-wage increases.

"There were a few people who said it wasn't just increasing prices directly, but trying to prioritize higher-ticket items, so they actually rejigged the way their stores display things, moving the higher-margin items to be more prominent," says Cato Pastoll, chief executive officer of Toronto-based Lending Loop. "It kind of forced people to make some just generally good business decisions," he adds.

That was the experience of Jon Milazzo, who owns Retrofit Home, a furniture store in Seattle. She did have to stop offering entry-level positions for teenaged employees. But beyond that, she dealt with much of the wage pressure from the rest of her employees by encouraging them to be more creative with their sales pitches.

"A year ago we sat down with our staff and said: 'Okay, here's the writing on the wall, this is what's happening so we do have to figure out how to make more money, and if we do, that money is going to you,'" says Ms. Milazzo.

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One employee started contacting new condo developments to see whether they would offer Retrofit Home deals to incoming tenants. Another focused on getting the company's online store up and running. Ms. Milazzo also encouraged friendly competition between different departments to see which could post the best sales numbers, all of which led to a "blockbuster" year for sales, she says. "Find out what makes your staff excited and empower them to be part of it with you."

Businesses still have the option of simply raising prices, though owners can be reluctant to do this out of fear their customers will go elsewhere.

In most cases, however, "price is a relatively small part of customer choice," Mr. Hoult says. There's frequently room to raise prices a bit without a noticeable disruption in customer demand, he says, especially when the wage increase will be causing competitors to raise prices as well.

"Because the current economy is doing very well, there is room to raise prices," says Mr. Hoult. "There are a lot more options for people trying to deal with this than there was during the recession."

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