Impact of Minimum Wage Changes on Small Businesses

This article was written by Robin Noah, SCORE Orange County Business Mentor

Just about every state is going through a minimum salary change. Take a trip through the internet regarding minimum wage increases and your eyes will be opened.

In California most employers are aware that California’s minimum wage for non-exempt employees will increase from $8 per hour to $9 per hour on July 1, 2014, and to $10 per hour on January 1, 2016.   These upcoming minimum wage increases are significant because they also impact the minimum salary for exempt status employees, and commissioned inside sales employees.

Exempt Class: To be classified as an exempt employee the employee is required to meet certain requirements with regard to the type of work they are doing - they also must meet a minimum salary test.  Additionally California law requires that an exempt classified employee must earn a monthly salary that is twice the state minimum for a full time employee (40 hours per week).  

The current minimum salary for a full time, exempt employee is $33,280 per year.  This will increase on July 1, 2014 to a minimum exempt salary of $37,440 per year.  By 2016, employees will need to earn at least $41,600 per year to meet the minimum salary test for exempt status.

Inside sales: State minimum wage also impacts the pay of commissioned inside sales employees.  Under California law, an inside salesperson will be exempt from overtime pay if they earn more than 1.5 times the state minimum wage  and more than half their income comes from commission.  This means that in order to be exempt from overtime pay after July 1, 2014 an inside sales person must earn at least $13.51 per hour, and starting on January 1, 2016 an inside sales person must earn at least $15.01 per hour.

Consider that in many businesses, starting pay will rise to levels higher than minimum wage. Fast-food employers in metropolitan areas often do not start employees at minimum wage.

Frequently these employers offer starting wages between $.50 and $2 above minimum wage to attract better-qualified employees. Raising the minimum wage may mean that employers interested in such business practices will need to pay between $10.50 and $12 per hour to new employees.

As you can see exempt employee salary increases, compliance costs, seniority costs and competition costs create hidden costs that significantly affect a large portion of many industries including the restaurant industry in Los Angeles which is looking for a minimum wage of $15.00 an hour.

Since there has been increase in class action litigation on the issue of whether employers are properly calculating the “regular rate” for minimum wage and overtime purposes, employers should conduct internal audits of their companies’ payroll and wage payment policies and practices.

Keep in mind that in California, unlike Federal law, the minimum wage rate must be separately paid for "each hour worked" rather than as the average of the compensation for all hours worked in a week.  As a result, "piece rate" or performance-based compensation systems must ensure that each category of employee work time is generating sufficient compensation to comply with the new standards. So even if the employee works less than 40 hours a week they are entailed to overtime for any day worked more than 8 hours unless there are labor or government contracts in place.

Smart employers will audit their pay practices to ensure that they are compliant with all State and Federal wage and hour laws. Minimum steps to take are: a) an audit of pay practices, b) the restructuring of pay agreements, c) updated job descriptions, d) updated policy and employee handbooks.

The issue of minimum wages is not going away and there is little room for variances, if any. Take time to learn how the law will impact your specific industry. If you are concerned about your payment practices see an attorney that specializes in human resources law.

(This article is generic in intent and not to be considered as legal advice)

Buying A Home Based Business Part 5: The Going Concern

 

This article was written by Mike Capsuto, SCORE Orange County Business Mentor

If you see a bandwagon, it’s too late. James Goldsmith

Another aspect of due diligence is an evaluation of a business as a “going concern”. A “going concern” is an accounting term for a business that can function without the threat of liquidation for the foreseeable future. Key factors are the product life cycle, consumer buying decisions, and competition.

Every product or service has a life cycle. The cycle can be as long as years or decades for products such as farm equipment or can be measured in months for high technology products such as smart phones. Life cycles are influenced by the economy, changes in buying habits, technology, laws and regulations. The buyer should determine what stage of the life cycle the product or service is in. Each stage has marketing and financial implications which can affect its ability a going concern.

• The Initial stage of a product or service is building the demand and establishing the market for the product. The key emphasis will be on promoting the new product and developing the right distribution channels to get the product to market. In the initial stage, additional funding will be required to market the product or service. However, there is also the risk that the market will reject the product or service.

• The Growth stage is a period of rapid growth. Sales increase as consumers become more aware of the product or service and their benefits. However, profits may not be as great as anticipated due to the need to reduce selling price and to reinvest some of the profits into marketing and promotional activities to continue growth and reduce the threat from the competition.

• The Maturity stage is the longest of the four stages. It also presents challenges. With sales reaching their peak and the market becoming saturated, it can be very difficult for businesses to maintain their profits. During this stage, businesses must look for innovative ways to make their product or service more appealing to the consumer to maintain their market share. It is necessary to determine how much time is left before it goes into the decline stage. This is similar to purchasing a used car. Has it been driven 10,000 miles or 1,000,000 miles?

• Products or services going through the Decline stage will experience a shrinking market along with falling profits. In the Decline stage inventories risk becoming obsolete and may have to be liquidated below their cost. Clients requiring your service will become difficult to find. For some businesses it will simply be a case of continuing to provide the product or service as long as it is profitable, but withdrawing it as soon as that is not the case.

Another factor is to be aware of buying into a business fueled by “fads”. Their life cycle of quick, dramatic sales powered by inflated consumer zeal and then followed by a sharp, drastic decline in consumer interest differs from the five stage product life cycle concept. The Hula Hoop, Pet Rock, and Cabbage Patch Kids were all crazes known as fads. More recently is the gourmet food truck craze which was built up from a popular television program but whose numbers have dropped significantly in the last two years due to sharp decline in consumer interest.

Wants are unlimited but the resources to satisfy those wants are limited. It is important that the purchaser of a potential business have a basic understanding of the consumer buying process in relation to the products or services being sold. This includes how consumers identify their needs, collect information, evaluate alternatives and make the purchase decision. These actions are determined by psychological and economical factors, and are influenced by environmental factors such as cultural, group, and social values.

Abraham Maslow, an American psychologist, crated a hierarchy predicated on the various needs a consumer seeks to fulfill in the purchasing decision. He proposed five levels of motivation culminating in self-actualization.

1. Biological and physiological needs - food, drink, shelter, sex, sleep, etc.

Products: Health foods, medicines, exercise equipment.

Example: Cheerios – I hear it is good for your heart.

2. Safety needs - protection from elements, security, order, law, limits, stability.

Products: Smoke detectors, insurance, seat belts, home protection alarms.

Example: Toyota – our cars are equipped with ten airbags.

1. Belonging - desire for love, friendship, group acceptance

Products: Personal grooming, religious groups, professional organizations, gangs

Example: Shriners International

4. Esteem – Fame, prestige, attention, self confidence.

Products: Clothing, hobbies, mode of transportation.

Example: BMW - - The ultimate driving machine.

5. Self-actualization – This is the top of the hierarchy. Realizing self fulfillment and potential.

Products: Education, sports, gourmet foods.

Example: U.S. Army – Be all you can be.

Maslow’s concept is useful to understanding consumer needs and wants and that a product or service promotion is consistent with the way consumers relate to that product. Supermarket firms develop value brands to meet the psychological needs of hunger and thirst. Nordstrom develops products and services for those who want have met their esteem needs. Purchasing decisions evolve as consumers move up the hierarchy. Food for survival is at the lowest tier, but by promoting it as a gourmet experience can place it at the opposite end of the spectrum.

Another concept that requires close evaluation is the marketing strategy related to the consumer involvement in selecting the company's products or services. There are four types of buying behavior:

1. Complex buying behavior occurs when the consumer is purchasing something expensive or risky, such as a personal computer. The consumer learns about the product line, is highly involved in the buying process, and perceives significant differences among brands. Marketers must differentiate their products' features from other brands.

2. Dissonance-reducing buying behavior occurs when an expensive or risky purchase is being made, but the consumer perceives no difference in brands. They may purchase the brand that offers the best price or that is the most convenient to buy. Make sure that:

• The website is easy to navigate

• Appears at the beginning of a search.

• Prices are competitive.

3. Habitual buying behavior involves low consumer involvement and little concern for brand differences. The individual buys a product out of habit such as a daily newspaper, sugar or salt.

4. Variety-seeking buying behavior is characterized by low consumer involvement but significant differences in brands. Consumers displaying this type of buying behavior often switch brands to experience variety rather than because of dissatisfaction.

Culture and social status also, impact consumer behavior. Culture is defined as our attitudes and beliefs influenced by family who may teach them what is wrong or right. These factors will influence their purchase behavior however other factors like groups of friends, or people they look up to may influence their choices of purchasing a particular product or service.

People's social role within society will also impact their purchase decision. Are they doctors, office workers, teachers or parents. The type of job may mean the need to purchase more formal clothes. Income has an impact. The lifestyle of someone who earns $250,000 would clearly be different from someone who earns $25,000. Also characteristics have an influence on buying decision. Whether the person is extrovert (outgoing and spends on entertainment) or introvert (keeps to themselves and purchases via online or mail order) again has an impact on the types of purchases made.

Competition is a rivalry in which every seller tries to get what other sellers are seeking by offering the best practicable combination of price, quality, and service. Casual knowledge of business competitors is insufficient. Competitors should be systematically analyzed as part of the buying decision process. Knowledge of competition both real and potential is important to determine their strategy and their resources and capabilities that impact future sales.

• Make a list of the three chief competitors.

• Search the internet. Competitors can be local and international.

• Are they known personally.

• Do they have more resources?

• If the competitor is publicly traded information on their financial status can be found by using the SEC's EDGAR system.

• If not, contact the Better Business Bureau or Economic Development Agency in their area.

• How do they price their products or services?

• Are they higher or lower than the seller's business?

• What are their particular payment terms?

• How do the competitors obtain business (direct advertising, internet, market awareness)?

• What are their strengths and weaknesses compared with the products or services the seller offers?

• Can their weaknesses be exploited to your advantage?

It is important that potential buyers of a business consider all the above factors that can affect the going concern of a company. Most of it is not quantifiable. One might need the opinions of experts to help make decisions in this area. The risk of not evaluating these areas could cause one to buy into a business that will not last long enough to recoup their investment.

The Art of Selling

This article was written by Barry McKinley, SCORE Orange County Business Mentor

To be successful in sales takes a lot of practice and following established principles. The basic ingredients to effective selling are the following; Product & Competitor Knowledge, Selling Tactics & Strategies and Attitude, Enthusiasm and Goals. Having all these tools at your disposal will increase your close rate 10 fold. Lacking one or more and you will struggle to get orders and loose to more qualified sales people. It is normally not the best product that is the market leader but the product that is marketed the best. No different with sales. Following is a brief discussion of each of the required skills;

Product & Competitor Knowledge

Without knowing your product and your competitors inside and out it becomes very hard to overcome objections. In any selling situation the well trained salesperson sells the benefits of the product - not the features. If you don’t know and understand your product and your competitors you will quickly be embarrassed and ineffective. A good salesperson will focus on the benefits of their product and showing the weakness of their competitors. Without excellent product knowledge you will fail. The top producer is able to offer solutions to their customers fitting the company’s products and services to their needs. They are able to professionally probe customers to establish their requirements. They will know the competition’s strengths and weaknesses. They are able to deliver the sales message to the customer without “Information Dumping”.

Selling Tactics & Strategies

What type of approach will you use with the client? Perhaps offer a demo, free sampling or maybe even a money back guarantee. Your ‘game plan’ should be organized and planned out long before you approach the potential client.

You need to sell the concept of the product and how it will benefit the user. You want to build the need of the product and its advantages. You don’t want to allow the hub of the conversation to be based around price. Price is only one of many factors in making a buying decision. You must be prepared to weigh in with other factors that neutralize price consideration. You must be prepared via client probing to deliver the sales message in the format that is most understandable and motivating to the client. It is ALWAYS about the client and their needs and wants.

Attitude, Enthusiasm and Goals

Without showing enthusiasm for your product and its benefits how would you expect to excite a client? A sales presentation requires planning and practice. You must show the client a positive attitude and “bubble over with excitement”. Remember if you don’t have the clients excited and interested the sales process quickly stalls. The final step in the process is to have a predetermined goal, whether it is obtaining presentation with the boss, product trial, or move to next level. In over 60% of selling situations the sales person does not ask for the order or what the next step is.

Effective salesmanship takes a lot of planning, research and practice. If you miss any of those key sales steps the odds of success are cut in half.

Inventors Should Have a Business Plan Also!

This article was written by John Rau, SCORE Orange County Business Mentor

Lots of people have invention ideas, but never do anything with them. Why? One reason might be that they don’t know what to do next. They don’t have a plan and, as a result, don’t know how to proceed. Here’s how to address this dilemma. It is generally recognized that all new business start-ups should have a business plan, so why not inventors? They should have an “Invention Business Plan” that provides the details as to how the inventor should move forward with his/her idea. Think of the Invention Business Plan as part of your “due diligence process” wherein you are laying the foundation as to how to proceed. In addition, this plan could eventually become the basis for the inventor’s business plan should he/she decide to create a business venture to manufacture, distribute and sell the new product idea.

A suggested template, based on commonly used business plan templates, is as follows:

Executive Summary

Brief overview of your invention plan, citing the important and noteworthy elements, and generally written after the other sections are completed. This is the “eye catcher” section to get the attention of potential licensing candidates and companies that may have an interest in your invention idea as well as potential investors so that they will want to read more about your new product idea and perhaps invest in it. You should include a brief summary of what your invention is (name), what it does, what problem(s) does it solve, how it may be an improvement over existing or similar products, and how it is useful. (Note: Keep this to 1-2 pages max.)

Description of the Product/Idea

Describe the main parts or components that make up your invention, how it works, what it does, its main features, and how it can be used. Show applicable schematics, diagrams, prototype photos, etc. and, if applicable, cite the claims in your provisional patent application (PPA) if you intend to file for a utility patent. Remember one key advantage to filing a PPA, in addition to getting you an early filing date, is that you can claim patent pending on your idea.

Patent/Market Analysis

Present the results of at least a preliminary patent search, preferably conducted by a patent agent/attorney or patent search firm. Credibility of these results is important. These results would be more credible than if you conducted the search even though you might be able to do a good job. What you want to avoid is the situation where you say that you conducted a patent search and couldn’t find anything. Let someone who is in the business and has no vested interest in your invention idea say that. In any case, the point here is that you should always do some type of initial or basic patent research to either make sure that your patent idea has a good chance of receiving a patent or, if you don’t plan to pursue obtaining a patent, make sure you are not infringing on some other patented idea(s). Documenting these results in your plan is important.

Describe where and how your new product idea fits in the marketplace. What is the target market--total size, current demand, growth history, sales trends, statistics, potential customers, etc.? Are there similar or potentially competing products? If so, how do they compare with your new product idea? How is yours different or potentially better than theirs? What companies sell and/or manufacture these products? (Note: The value here is that they could be potential licensing candidates or even buyers of your new product idea.) Here is where you present your market assessment.

Exit Strategy

The objective of the exit strategy is to determine the best way to take your invention idea to market. Describe the development options you are considering and how you plan to implement them. Depending on the results of your research and analyses, the logical choices would include the following:

Plan A—You have determined that you won’t be infringing on any other patented idea(s), you don’t want to bear the expense of patent filing and, as a result, you plan to move forward and develop and market your new product idea yourself, in which case you will need a detailed business plan.

Plan B—You have determined you want to pursue patent protection and the best approach for your invention idea is to file for a design patent. Since design patents generally issue more quickly than utility patents, you should start focusing on your marketing plan.

Plan C—You have determined that the best approach for your invention idea is to pursue patent protection via a utility patent. You have the option in this case of starting with a Provisional Patent Application (PPA) to buy yourself a year’s time for further homework and research.

If either Plan B or Plan C is your choice, then, as with Plan A, you can still move forward and develop and market your new product idea yourself in which case prepare your business plan. On the other hand, if you are thinking about licensing or selling your patented new product idea, then start focusing on your marketing plan.

In summary, as pointed out by Brian Fried in his article “Develop an Invention Business Plan for Success” (see: http://gotinvention.com/detail.php), “An Invention Business Plan is an effective communication tool for providing a clear and tangible description of your invention while conveying its viability and value. It tells a detailed story about your invention including what it is, how it works, and why your invention is a believable business opportunity. It can generally be described as an organized all-in-one depository of everything you know or have learned about your invention. It includes every angle about your invention so as to be used as a reference point for the development and/or submission of audience specific requests.” SCORE counselors can help you with all of your business planning needs.