Voters have spoken. With more than a 60% majority, Florida will be raising the minimum wage. However, what does a $15 minimum wage mean for selling your business?
Amendment 2 was designed to increase the state minimum wage from $8.56 to $15.00 per hour. On September 30th, it will rise to $10.00 per hour. Every year thereafter it will increase one dollar until reaching $15.00 per hour in 2026.
Whether you were in favor or not, the debate is over and it’s now law.
Experts are divided on what this will mean in the long term, but in the short term, we’re getting the question from clients, “What does this do to the value of my business?”
I won’t mince words here; If you own a business that employs workers at minimum wage, it will hurt you the most. Increasing labor costs means less profitability, and that affects what buyers will pay you for your business.
Unfortunately, there is more bad news. Even if you pay well above minimum wage now, Your employees won’t be happy to know they are making the same or slightly more than the lowest-paid workers in the USA. That’s called pay compression, and it’s a term many business owners are going to get familiar with the hard way. Expect your cost of goods sold to increase too, because your vendors are feeling the same pressure you are.
All of this is will cause additional challenges for owners looking to exit in the next 5 years.
What you can do to minimize the effect of $15 minimum wage impacts for selling your business
The good news is, there could be an upside. For many businesses, their cost of labor is the highest expense they have already. Now that it’s on the rise, it could persuade business owners to adopt new technologies. We have already begun to see it from kiosks in fast-food restaurants to automation on the assembly line. These trends will continue and even accelerate in Florida over the next 5 years.
Eliminating a $15 per hour job with a $0.35 per hour machine makes a lot of sense- from a profitability standpoint. Owners that embrace this mindset and invest in new technologies can show wild swings in profitability that more than pays for the additional debt it takes to implement. Even smaller tech adoptions can make a big difference, like point of sale systems and digital Inventory counting.
Buyers of businesses love processes, tools, and technology. Not only can you run a more efficient business, but you can exponentially increase its value.
Next, look for additional revenue streams. Buyers are hesitant to invest in businesses that have income coming in just one way. Instead, look for ways to offset your added personnel costs by looking for upsell opportunities. In the 1980s, Mcdonalds pioneered this method of selling by asking “Want fries with that?” at the drive-through window. You can do the same. Adding an average of just 10% per sale can make a huge difference in profit and loss statements. Also, find products and services you can provide that customers need anyway when they do business with you. If you’re a lumber yard, sell nails, if you are a gym, sell sportswear.
“As your cost structure changes, so should your revenue structure” So you should take into account the effect of the $15 minimum wage has on selling your business.
We know this isn’t easy, and some older business owners will be resistant to change. The work that comes along with such a major shift in doing business can be challenging to do. My advice for those owners? Consider moving up your timeline for a business sale a year to two sooner than you planned. This way you will be able to show maximum profits before higher labor rates erode your numbers. Start preparing your business for sale BEFORE the full wage hike goes into effect. Thereby minimizing your impact of the $15 minimum wage in selling your business. Starting the process now means you will still be able to exit with as much cash as before the law was passed. Waiting too long means you will take a discount reflected in the sales price. The new owner will have to buy the business for a reduced price so that they can afford the technology improvements and revenue model changes needed to survive.
What we do know now is that businesses will continue to be bought and sold even with the new law. Regardless, of the $15 minimum wage impacting the selling of your business. Owners still age out, have health concerns, want to spend more time with the family, travel, or just explore new opportunities. The only unknown is how much wealth they will take with them as a result of the increase to $15 minimum wage when selling your business.
About Bianca Evans
Bianca Evans is an experienced business broker based in Jacksonville, Florida. She is a top producer in her field. She has made over 160 transactions since 2006 which makes her among the most seasoned in the area. She is a Certified Business Intermediary (CBI), a Certified M&A Professional (CM & AP), a Board Certified Intermediary (BCI), and has her B.S. degree from the University of Florida.
Other notable accolades and achievements:
•The Million Dollar Plus Award 2008, through 2020
•Dealmaker Award top 3% in the state for completed deals 2018
-Most dollars sold in North Florida in 2018, 2019
•Sold an array of industries including manufacturing, wholesale/distribution, service, retail, restaurants, professional offices, and more.
•25 years of Sales Experience
She maintains her professional networks by participating in a variety of associations including the International Business Brokers Association (IBBA) and the Business Brokers of Florida (BBF).
One interesting fact about Bianca is that she used to be a business owner herself! She has been on both sides of the transaction when she purchased and later sold that same business. She finds that perspective invaluable when relating to her clients and balancing the many details and emotions.
She is licensed in Georgia and Florida and speaks fluent German.
To reach Bianca, email: [email protected] or visit her website https://www.myfloridabusinessbroker.com/