Austin, Texas resident Sean Falk owns 12 Great American Cookie and Pretzelmaker franchises in Michigan, Ohio, Kentucky and Tennessee, and he’s thinking of expanding.
In the past year, Falk opened two locations, and signed agreements to open another two whenever he decides in the future.
But until he gains more clarity about federal policies affecting his franchises and employees — the Affordable Care Act, taxes, and President Obama’s proposal during the State of the Union address to raise the minimum wage to $9 an hour — Falk isn’t going to open the two new franchises he already paid for.
“I don’t foresee using them until I figure out more,” Falk said. “With Congress continually making these six to 12-month changes in our business environment, I have no idea how to plan for the future.”
Falk currently has about 90 employees between the 12 franchises, 60 percent of whom make just the minimum wage (he pays the rest around $9 an hour, depending on if they have extra skills or responsibilities). If the minimum wage hike went into effect, he anticipates a 24 to 34 percent payroll increase — those who are already paid $9 will likely ask for a raise if other workers’ wages are raised, Falk predicts.
“If suddenly tomorrow a high schooler at 16 with no skills whatsoever comes in and makes $9 an hour, an employee who has a few extra responsibilities who opens, closes, or does some bookkeeping [isn’t] going to be happy making that.”
Most of his minimum wage employees are high school students or teenagers working their first job, or trying to make some extra cash, and they rarely plan to stay for longer than three to 12 months, Falk said.
The past few years have been difficult for his franchises. “Our profit from our business operations has deteriorated so much,” he said. Amidst uncertainty about the federal budget situation, rising commodity costs, and the potential minimum wage hike, “all these things nip away a little bit at a time at our profit.”
Pamela Springer, chief executive of Manta, has been observing rising concern among online small business community’s 3.4 million registrants.
“There’s some angst about what’s going to happen,” she said. “Any time your expense base goes up, it’s not good especially if your revenue isn’t going to up commensurate. It’s probably more expense based concern, not being offset by revenue growth.”
Springer said she expects small business owners burdened by the minimum wage hike to look increasingly to technology to help them find new customers, and cut costs — finding alternatives to traditional secretaries answering phones, transitioning certain operations online, and more aggressively targeting customers via social media.
But for other small business owners who already pay their employees more than minimum wage, the hike doesn’t pose much of a threat.
Aaron Gordon, who owns six food businesses in D.C. and Virginia including Red Velvet Cupcakery, frozen yogurt shop TangySweet, and Zeke’s D.C. Donutz, said he doesn’t expect to adjust his finances at all if the hike took effect.
Gordon pays even his lowest paid employees — about half of his 100 or so staffers — more than D.C.’s $8.25-an-hour minimum wage, between $9 and $12 an hour.
“My feeling is that if you want to get good people and retain good people, you’ll pay them a little more anyway,” Gordon said.
Capital Restaurants owner Paul Cohn — who owns seven restaurants in the area including J. Paul’s and Georgia Browns’ in Northwest Washington — said that while the margins in the restaurant industry are generally small, at his restaurants, “it’s not going to be that impactful.”
Cohn said he makes sure his employees are trained more than they would be at any fast-food or takeout restaurant, and he therefore pays them more than minimum wage.
“I can’t remember the last time we paid a minimum wage. We’re always paying a lot more than that,” he said.
But he noted that industry costs are rising — especially for produce and protein — and other restaurants might not be so lucky.