By: Jeffrey Wishman, Attorney at Law
The incoming Biden administration has announced that it wants the Federal minimum wage to be increased by to $15.00 per hour. Covid restrictions are still in place, which already hurts small businesses. We predict that raising the minimum wage may be the final straw that will kill off many businesses that already are struggling. Forbes magazine predicted the death of 50% of existing small retail businesses if further government mandates are imposed. And now, along comes a raise in labor costs.
Who else gets hurt by small business failures?
This is a challenging time for small enterprises, to say the least. Covid restrictions and government mandated employee benefits are expected to force many small enterprises to close forever.
We can predict that many hourly employees will be laid off to reduce payroll costs of employers. And the survival struggle will work its way thru the entire business food chain. It is certain to affect the health and payrolls of all companies that provide the services and products needed by small businesses.
Even landlords can be adversely affected. When small commercial tenants can’t pay rent, landlords will have to struggle. Landlords rely on rents to pay their mortgages and property taxes. This may eventually jeopardize the banks which hold those mortgages.
Small businesses have do what they always do to survive in troubled times.
The survival tactics for small businesses may include some or all of the following strategies:
- Business hours may have to be be reduced. Small operators may adjust their hours of operation. They may opt to stay open during profitable peak hours. And they close during slower hours as a way of cutting payroll. (However, many businesses that operate in malls and shopping centers are bound by strict lease restrictions. Typical mall leases require stores to remain open for certain hours of the day no matter what.)
- A business may be forced to reduce payroll by laying off employees. Owners will try to hang on to as many of their best employees as possible. Workers who are viewed as not the very best will face termination.
- Reduce retail store inventories without reordering new stock. There will be little reason to reorder and restock merchandise that is slow moving. Overall inventory reduction can free up fresh cash.
- Cut back on advertising. That may sound counter intuitive, especially for a business that is struggling to survive. But everything that can staunch the hemorrhage of outgoing cash has to be considered. (Why advertise a restaurant when the government won’t let you have customers who can come in to eat and drink? Surprisingly, I still see restaurant ads in Los angeles where I practice law.)
- Reduction of the owner’s compensation, and increasing the number of hours that the owners are working on the premises. Owners will have to work more hours. They will also need to perform menial labor to take up the slack left by staff reductions.
- Have unpaid family members help out at the business to take the place of laid off workers.
We hope these suggestions will provide practical suggestions. And, owners should at least consider the options and benefits of bankruptcy. Bankruptcy is often filed to protect a business and allow it to reorganize debts and reschedule debt payments. The lawyers of Bayer, Wishman & Leotta are Los Angeles bankruptcy attorneys. The firm was started in 1989.