Hidden Danger – The Labor Market and Your Bottom Line

 

We recently have read several surveys citing increasing business optimism, particularly in the lower-middle market.

In fact, a survey published by the law firm, Dykema, in late October of this year, expressed an overall bullish viewpoint of the economy bringing a new level of optimism not seen in several years.

Nearly three-quarters of the survey participants expect business activity to rise over the next 12-18 months.

 

Unknown Challenges Ahead !

Despite this optimism, businesses face a challenge they may not be considering.  One of the recent issues is an increasing lack of qualified job seekers. 

Some businesses report they would gladly pay higher wages if they could find suitable candidates. 

On the other hand, there are many businesses that do not believe they can afford to pay higher wages as they cannot afford the impact on the bottom line.

 

They Are In A Dilemma …

In our practice, we frequently hear that businesses are losing employees to their competitors, or to other industries because they cannot match wage rates.

We also hear that they cannot find qualified skilled replacement workers at the rates they were paying the employees that left.

That is, until they find themselves in a dilemma where they must pay a higher rate, or face a decline in sales because they cannot produce their products at a rate sufficient to meet current or future customer orders.

 

Avoiding A Mass Exodus …

Case in point, take the example of a recent client company that was experiencing a high employee attrition rate.

They realized that their employees were leaving for a different job, where they were getting paid 30% higher and with better benefits.

The company needed to do something quickly, so they decided to raise wage rates by 30% to attract new employees.

Not only did they have to pay more for new hires, they had to raise everyone’s rate in the company, or face a mass exodus as a result of paying new employees more than the existing staff.

In not anticipating this issue, the company incurred significant unplanned additional wage expenses that negatively impacted their bottom line as they could not raise prices fast enough to mitigate some or all of the rapid wage adjustment.

 

Know Your Labor Market …

Employers must take the initiative to understand the labor markets they compete in and the wage rates that are required to attract qualified workers.

The key here is QUALIFIED workers.  One common way to understand what the market wage rates are, is to monitor pay rates required for open positions.

If applicants are consistently asking for wages higher than you are offering, that is a sign you may be paying your existing employees less than market rates.

Another way to monitor wage rates is to network with your peers in industries that do not directly compete with yours.

Understanding what other companies are experiencing in certain job classifications is another way to monitor wage inflation. 

Once you determine that you may have an issue in paying employees less than market rates, then you can develop a proactive plan to resolve the problem.

 

Basis For Optimism …

The key to business optimism is the desire to grow revenue and the bottom line.

Retaining your existing employees and finding qualified new staff to support growth plans is key to increasing your business!

 

Revitalization Partners is a Northwest business advisory and restructuring management firm with a demonstrated track record of achieving the best possible outcomes for our clients. And now, we’ve written a book to help our readers understand the issues facing their businesses. You can find this compilation of our business thoughts at:
http://revitalizationpartners.com/we-could-write-a-book/ or on Amazon.

We specialize in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations.

Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering or Receivership/Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.