On November 6, Arkansas and Missouri voters voted in favor of huge increases to state minimum wages, which are set to go into effect with the start of the new year, on January 1, 2019.
The Business Financing Advisors at NBC&S wanted to share everything small business owners in AR and MO need to know about the wage increases, and how to prepare for these changes in order to succeed in spite of them.
Among the poorest states in the nation, it’s no surprise that voters from both strongly conservative states would make the liberal move of increasing wages, as the state is known for their populist views of protecting the financial stability of their own populations – a move that President Trump himself encouraged on his campaign trail.
However, leading economists, including Trump’s economic adviser Larry Kudlow call the move a “terrible idea,” as it will “damage particularly small businesses… to force them to take a payroll increase would be silly.” Watch Larry Kudlow defend his views in his interview with the Washington Post here:
No matter how you look at it, minimum wage boosts are expected to result in some major changes to the job markets and small business growth in both Arkansas and Missouri.
68% of Arkansas voters moved to increase minimum wages at the alarmingly fast rate of about a whole dollar amount with each passing year.
On January 1, 2019, the Arkansas minimum wage will increase from $8.50 to $9.25. In 2020, the minimum will be raised to $10.00, and then again in 2021 to $11.00.
About 300,000 workers in Arkansas are currently receiving minimum wage pay, which accounts for 25% of the state’s entire workforce.
With every one in four workers in Arkansas receiving higher pay with each passing year, small business owners already starting to worry about losing business to other surrounding states, which still have low minimum wages, as well as larger corporations that have less trouble offering the higher wages to come.
Missouri wage increases will be more gradual than Arkansas, but will ultimately be raised to an even higher dollar amount by 2023. Over 675,000 workers will be affected by the move – about 25% of the workers in the state, and more than double the amount of workers in Arkansas.
Over the next five years, Missouri minimum wages will increase from the current $7.85 to $12.00. This will ultimately make Missouri workers receiving minimum wages an additional $870 million collectively over the course of the 5-year plan.
62% of Missouri voters made a move for the increase, sending a message to other republican state governors and senators to follow suit in the years to come. Over 675,000 workers will be affected by the move – about 25% of the workers in the state, and more than double the amount of workers in Arkansas.
The most obvious result of the rising wage effects on small businesses is the trouble they will face with taking on higher payroll.
Small businesses that cannot meet the payroll increases required by minimum wage will have to compensate for the wage increases by laying off workers, and hiring less frequently than they have in many years.
Keeping your competent and reliable workers during the wage increases will be crucial.
In the months to come, hiring new workers should not be your main cause for concern. Taking care of the workers you know your business needs will become your priority.
There’s no sugarcoating it – it’s very likely that you’ll have to lay off select workers that you don’t absolutely need in order to stay in business.
If you cannot or choose not to lay off workers, your only alternative will be to obtain financing through a small business loan, SBA loan, business line of credit, or other funding option to help keep operations running smoothly until the economy adjusts to the rising wages.
In fact, there are financing options for small businesses with terms specialized to help manage payroll, and hire new employees in the face of financial strain: View Business Financing Product List
Investing in new equipment to take the place of jobs has already become the new reality of many small businesses in Arkansas and Missouri.
Although this poses a threat to the job market, it stands as a highly effective and successful practice in keeping businesses afloat in the face of rising wages.
Investing in new equipment is known for being one of the most time and money-saving practices for any business that cannot afford to take on higher payroll.
Many small business owners from both states have already begun investing in new equipment in response to these changes, setting themselves up for lowering payroll expenses, increasing efficiency, and retaining valuable workers that will face wage increases.
IMPORTANT TIP: With new equipment tax codes in place (IRS Section 179), business owners have the opportunity to completely write off any new equipment purchases, making for a nice tax return if they are made before 2019.
Through equipment financing, business owners are able to get new equipment interest-free, and eliminate upfront equipment fees – all with complete equipment depreciation.
This tax code will change in 2019 in a way that is less useful in saving money on equipment taxes, so action before the new year will be vital to any business owner looking to replace employees with new equipment, and capitalize on this opportunity.
States with lower minimum wages will have more job availability than Arkansas and Missouri.
Small business owners in these states will have a much easier time hiring new workers, threatening the abandonment of employment among Arkansas and Missouri small business owners.
What’s more, large corporations including Walmart – which has already increased the minimum wage to $11.00 – will be much more likely to succeed in facing the increase in wages while continuing to grow as usual, compared to small businesses.
This will result in Walmart taking business and quality employment away from small businesses that are not prepared to keep up with the wage changes.
If your small business is at risk of losing business to surrounding states and larger corporations, the only way to combat this is to tighten your belt, and cut costs as much as possible in order to match the salaries your competitors offer.
There are many services that specialize in helping small businesses cut costs, streamline operations, improve sales, and reduce risk that Arkansas and Missouri business owners are already taking advantage of. To explore these options, click the link here: Menu of Small Business Services
It’s no surprise that rising wages will likely take away from the ability of small businesses to keep regular operations running as smooth as they have been.
Regular operational and overhead expenses that were comfortable in the past will likely become more of a burden in the months to come. Utility costs, purchasing materials and supplies, employee benefits, and other routine costs will be important to streamline and cut down on, but still maintain for the health of your business.
The number one most important solution is keeping your business relationships that work, eliminating the ones that don’t, and building new relationships with businesses that help you cut costs.
This will help you save time and capital by creating more lucrative, long-term financial solutions. However, these relationships won’t help you for when a sudden opportunity or challenge arises.
If you’re presented with a chance to purchase materials at a discount or hire a competent employee, or if a challenge arises that needs your immediate attention, being financially prepared to take immediate action will be crucial in maintaining business growth, and staying ahead of your competitors.
For businesses in industries including construction and food & beverage that are in constant need of capital to capitalize on new opportunities, a revolving business line of credit has become an extremely useful and popular tool.
These credit lines provide business owners with immediate access to cash, which they can use for any business use ASAP.
Instead of having to use the total amount of funds borrowed, as you would a business loan, credit lines allow you to draw only what you need at a time. You are only responsible for paying off the amount of funds you borrow, and not the entire line, lowering your cost of capital long-term.
What’s more, revolving terms allow you to replace any funds drawn, effectively preparing your business to take immediate action on any future endeavor.
And for businesses including wholesale distributors, manufacturers, and retail stores, invoice factoring and accounts receivable financing are both great ways to turn your invoices into cash, which you can use to keep operations running smoothly, and fill out future orders, instead of waiting for slow customer payments.
NBC&S is already flooded with applications from small business owners that need help preparing for the wage increases to come. Many of these business owners are already saving themselves much-needed time and capital as a result.
Call (877) 482-3008 for free advice from a live Business Financing Advisor, and tell them how they can help you prepare for the rising minimum wages.
Or, if you need capital immediately, apply online by filling out our simple 1-minute application to receive funding in as little as 24 hours.
National Business Capital & Services is the #1 FinTech marketplace offering small business loans and services. Harnessing the power of smart technology and even smarter people, we’ve streamlined the approval process to secure over $1 billion in financing for small business owners to date.
Our expert Business Financing Advisors work within our 75+ Lender Marketplace in real time to give you easy access to the best low-interest SBA loans, short and long-term loans and business lines of credit, as well as a full suite of revenue-driving business services.
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Matt Carrigan is the Content Writer at National Business Capital & Services. He loves spending every day creating content to educate business owners across every industry about business growth strategies, and how they can access the funding they need!