What Would You Do?

 

Let's suppose that you own a business that employs 1,500 and you pay above average wages to your employees of $20/hour with health insurance, 10 days sick leave and 10 days annual leave that increases to 15 after 10 years of employment and to 20 days after 15 years of employment.  Each employee also gets their birthday off but if it lands on a weekend, they can chose Friday or Monday as their day.

The product that you sell is in high demand by the customer which is why you operate three shifts but all the data shows that if you raise the price too much higher that a majority of your customers will start looking for substitutes.  Your company currently operates on a 20% profit margin and is planning to expand the product line this year as well as open several franchise operations, and explore selling the products in Europe.

The Federal Government has increased the tax rate for you company which is going to put you in a situation where you will be paying anywhere from $500,000 to a $1,000,000 more in taxes.

What would you do?

1. Layoff workers to compensate for the increase in taxes?
2. Increase the price of your products?
3. Use your profits to pay for increase in taxes and not change a thing?
4. Not expand your product line?
5. Not open franchises?
6. Close the door to Europe?
7. Do nothing?

Most business owners would layoff workers as the primary goal/objective is not just to make a profit from year to year but to be able to continue to play the game...  and yes, business is a game...  which is why they teach business game theory in business schools.

If your business was publically traded, then you would have another dimension to your decision making and that would be SHAREHOLDERS or STOCKHOLDERS...  and most business decisions revolve around stockholders than employees or even what may be in the best interest of the company.

My guess is that your company would lay off workers and raise the price of your products just to that point where your customers do not look elsewhere...

If your customer is paying $5 but will not pay $8...

• would they pay $6?
• would they pay $7?
• would they pay $7.95?

The very last thing that you would want to do is not have franchises, not have new products, and not open in Europe...  all of those possibilities come with risks...  that is true, but they also come with increase revenue that may or may not offset the risks...

This is the risk you have to take...  this is the game that you must play.