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Michael Lee, founder of Epsilon in Chico, California, is a passionate business professional who has helped establish successful businesses and uses this experience to meet the needs of businesses, non-profits, and individuals with whom he works. The backgrounds of Lee and his consulting staff... More
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  • $15 An Hour California Minimum Wage Possible By 2020: Why My Business Wouldn't Survive

    The Service Employees International Union (SEIU), California's largest labor union, has filed two initiatives in an attempt to raise minimum wage in California to $15 per hour.

    • The first initiative, titled the Fair Wage Act of 2016, was proposed by the SEIU-UHW, the healthcare worker arm of the union. This initiative seeks to raise California's minimum wage to $11 in 2017 and then gradually increase it a dollar per year until it reaches $15 in 2021. Once the minimum wage reaches $15, it would then automatically be adjusted each year to keep pace with the cost of living.
    • The second initiative, tentatively titled Raise California's Wage and Paid Sick Days Act of 2016, was proposed by the SEIU State Council. In addition to raising California's minimum wage to $15 by 2020 (one year earlier than the originally-filed measure), this initiative also seeks to double the amount of mandated paid sick leave for Californians and extend sick leave rights to workers not currently covered under state law.

    These similar, yet opposing initiatives have set up what some are calling a "ballot rivalry". It is (as of this writing) unclear if either, both, or neither of these initiatives will appear on the 2016 ballot.

    Add to this, Senate Bill (NYSE:SB) 3, introduced earlier this year by Senators Mark Leno (D-San Francisco) and Connie Leyva (D-Chino). California's minimum wage rose to $9 an hour on July 1, 2014, due to legislation signed by Governor Brown in 2013, and is scheduled for a final increase to $10 an hour this January 1, 2016. This bill, SB 3, proposes another series of increases, $13 by July 2017 with annual inflation adjustments to follow beginning January 1, 2019. SB 3 is currently stalled in the Assembly Appropriations Committee.

    If any of the above pass, will California businesses survive?

    I own a business (restaurant) in California that employs sixteen people. I understand the motives to raise minimum wage. But do we really think businesses can adjust from $9 an hour minimum wage in 2014 to $15 an hour minimum wage in 2020? That would be a 67% increase in just six years.*

    *The math: $15 / $9 = 1.67 or 167%. So: $15 is 167% of $9. Answer: $15 is 67% more than $9.

    As a restaurant, our labor cost goal is 40% (i.e. our labor costs should be no more than 40% of our gross sales). So, all things being equal, if minimum wage (and, respectively, all other employee wages) increased by 67%, that would bring our labor cost up to 66.8% (of our gross sales).**

    **The math: 67% of 40% is 26.8%. Then: Add 26.8% to our initial 40% labor cost goal. Answer: 68% labor cost.

    Confusing? Maybe a bit. But here's the bottom line: a labor increase from 40% to 66.8% (of our gross sales) means that our expenses just increased by 26.8%***. Do you think our business would be able to survive with a 26.8% reduction in profits/increase in expenses? We wouldn't.

    ***The math:

    Let's say we gross $500,000 annually. Our labor then should be about a $200,000 expense (40% of $500,000 = $200,000). As a restaurant, our food cost should be about $175,000 (35% of gross sales). That leaves us with $125,000 after labor and food costs. Of course, we have to pay rent, insurance, repairs, supplies, etc. In truth, after all these expenses, we'll be lucky to make an annual profit of $25,000.

    If labor increased from 40% to 66.8%: Let's say we gross $500,000 annually. Our labor then would be about a $334,000 expense (66.8% of $500,000 = $334,000). As a restaurant, our food cost should be about $175,000 (35% of gross sales). That leaves us with negative $9,000 after labor and food costs. Then we have to pay rent, insurance, repairs, supplies, etc. We're already $9,000 in the red after food and labor so, as you can imagine, we're likely looking around a $100,000 annual net loss.

    Needless to say, if we were unable to find a way to make up for this added expense, we'd be bankrupt within a year.

    I know what you're thinking: "Raise your prices." "Find ways to be more efficient." "Reduce shifts/employees."

    Sure. Ok. Then what is the point of raising minimum wage if goods become far more expensive, employees lose their jobs due to automation, or employees lose their shifts do to a necessary reduction in labor?

    Let me remind you, a $10 an hour employee costs a business closer to $15 to $18 an hour. Why? Taxes. Workers' comp. Unemployment. Social security. Did I mention taxes? Etc.

    Again, I understand the reasons for wanting to raise minimum wage. In fact, when we look at the income gap in this country between the lowest paid employees and the highest paid employees of large (public) corporations, it's disturbing. A 2012 study found that, on average, the CEOs of S&P 500 companies made 354 times the average wages of rank-and-file U.S. workers. The average CEO compensation was $12,259,894 per year while the average worker compensation was $34,645 per year. That's insane; a 354 to 1 income difference.

    (click to enlarge)

    So let's increase minimum wage in an effort to narrow this gap, right? Wrong.

    Even if the minimum wage increase did help narrow this gap for S&P 500 companies (which it wouldn't), what does it do for businesses like mine? As outlined above, it would likely bankrupt us. And we're not alone. If you owned a business, could you manage a 67% labor increase (and, effectively, a 26.8% reduction in profits) over a six year period? I doubt it. And of all the businesses you patronize, how many would be in a similar situation as mine? Probably most.

    So what's the solution? The cost of living in (certain parts of) California is high. Employees should be compensated fairly and given an opportunity to make a decent living. We're all on board with that. But remember when I mentioned that a $10 an hour employee actually costs a California business owner closer to $15 to $18 an hour? Wouldn't it be nice if a $15 an hour employee actually cost the business owner $15 an hour? It sure would be. I know that's idealistic, but it's something we need to talk about. Businesses are leaving California because, between the tax for this, the permit for that, the insurance for the other thing, that fee for, what was it again?, it's becoming too expensive to do business here. And it's bills and initiatives like those mentioned above, which put all the burden on the business owner, that are worsening this tragedy.

    In this country, we are free (and in many ways encouraged) to start our own business, make our own way. Have you ever dreamed about starting your own business, being your own boss, getting out of the proverbial rat race? Then do it. And when you're taking a break between setting up your business bank account and building your sleek new business website, do me a favor and really think about how the above initiatives and bill (if passed) would affect your business.

    To oppose or support SB 3, write a letter on your business's letterhead (if applicable) to:

    The Honorable Jerry Brown
    Governor, State of California
    State Capitol, First Floor
    Sacramento, California 95814

    RE: SB 3, Minimum Wage | Position: <Your position here: Oppose or Support>

    <Letter text here describing your position and reason>

    <Name and signature>

    Tags: economy
    Nov 10 7:18 AM | Link | Comment!
  • Why, As A Business Owner, I Will Never Use Yelp Again – And Neither Should You

    Remember the Better Business Bureau (BBB)? (They're actually still around but not as relevant as in years past.)

    I remember the BBB. I remember, in my youth, thinking that if I saw a business with the BBB accreditation sticker on their window, it meant that the business was legitimate and better than its non-accredited competitors. I also remember thinking that, if ever I had a complaint about a business, I could contact the BBB and they would sort it out for me. I thought, as the name implies, the Better Business Bureau was just that, a bureau that betters business.

    Oh to be young and naïve.

    I eventually learned, as I'm sure you did, that the BBB has no authority, is not an enforcement agency, and does not regulate or "better" business.

    To be blunt, the BBB is a scam. Businesses pay to become "accredited". If a business has that BBB accreditation sticker in their window, all it means is that they paid the BBB money and the BBB sent them a sticker. That's it.

    Sure, in more recent years the BBB has evolved to offer an "Online Complaint System" and "Accreditation Standards" but the point of these "tools" is primarily to further veil their illegitimacy. The online complaint system is just a place where you can send your complaint to the business, just like you can on Facebook, Twitter, LinkedIn, Google+, Amazon, etc. And the accreditation standards are just a regurgitation of state and federal laws.

    Though I have strong opinions about the BBB, it doesn't concern me. The BBB is not as relevant as it once was. And the BBB has never asked me for money to "accredit" my business.

    But Yelp (NYSE: YELP) is a different story.

    Yelp has, in my opinion, become the new Better Business Bureau. In fact, Yelp is much worse; the Worse Better Business Bureau, if you will.

    My wife and I, along with another business partner, opened a restaurant recently called Momona. We were handed the keys on August 1st (2015) and, after some light renovations, opened our doors to the public on September 1st.

    In early August, I began setting up our social media accounts/profiles; this included developing a Yelp account. Within a few days of setting up our Yelp profile, the incessant phone calls and emails began. Trixie (not using her real name), the very friendly Yelp salesperson who was, I would assume, just doing what her boss instructed, called us an average three times per day and emailed us an average of once per day the entire month of August. That's not an exaggeration. As I and the other owners were elbows deep in dust and grime and all things renovation, we avoided the phone calls and didn't respond to the emails. We had other priorities.

    One day toward the end of August, frustrated with the constant ringing phone, I answered. I told Trixie, in as friendly a manner as possible, that we were very busy with renovations and that our priority was to open on our target date of September 1st. This information, if she would have taken the time to look, was on our website. She said she understood but still pushed: "Well, how are you advertising for your grand opening?" Don't worry about it, I said.

    I ended the conversation with a gentle, "please don't contact us anymore". It didn't work. She laid off for a few days then began the calls again just two days before our grand opening. Again, our grand opening date was clearly viewable on our website. She should've checked. And if she did check, being one who works with small businesses, she should've had the wherewithal to understand that two days before a restaurant grand opening is the worst time to try and sell the business owners advertising.

    In the end, I blocked her number and we changed our Yelp profile settings to "do not contact". I thought that would be the end of my negative experience with Yelp. I was wrong.

    With our restaurant doors now open, we began receiving reviews on Yelp. After the first two days, we had a solid five star average rating. After a week, and as of this writing, we now have three and a half stars. Sure, we received a couple not-so-stellar reviews. This is expected. But these reviews are heavily outweighed by the many five star reviews we've received. But where did these five star reviews go? I saw them there just yesterday.

    Many of our five star reviews ended up in the "not recommended" reviews section. As a result, our average review (what shows up when you search for our restaurant on Yelp) is only three and a half stars, a rating that does not take into account the many "not recommended" five star reviews and, therefore, does not reflect the overall customer opinion of our establishment, cuisine, and service.

    I had no idea that this is how Yelp operates.

    Yelp uses a "proprietary algorithm" that filters some reviews out of users' view. In short, if you are a business owner, unless you pay to "advertise" on Yelp, your best reviews will likely land in the "not recommended" reviews section and, as a result, will not be taken into account with your average, overall rating.

    Oh how naïve I was. Like the "Pay no attention to that man behind the curtain!" scene at the end of Wizard of Oz, I now understand. Yelp is a scam. Trixie wasn't just trying to sell me "advertising", she was trying to sell me the opportunity to shift positive reviews back into my (business's) favor. I, like many others, I'm sure, thought that Yelp was an unbiased rating and review website/app, a very helpful tool for finding and learning the average customer rating of a business. It's not.

    I'm thinking about calling Trixie, the assertive Yelp salesperson who was just doing her job. I want to ask her how long she's worked with Yelp. I want to ask her if she thinks she'll be working there much longer. I want to tell her that, given the current business model, unless Yelp pivots drastically or spins off, the business will not succeed. I want to advise Trixie to start looking for a new job.

    Yelp is a publicly traded company that shouldn't be. The premise of the entire business, to offer "unbiased" ratings and reviews of businesses does not jive with a profit model needed for publicly traded companies. It's not Facebook (NYSE: FB). Yelp can't make enough money on ads alone. But Yelp figured that out. So now they're trying to increase profit by giving businesses an "opportunity" to shift those good, honest reviews back in their favor. This won't work. People are smarter than that.

    After learning what I have learned about Yelp, I will never use Yelp again. If I owned stock in Yelp, I'd sell. The general public is, like I have, beginning to realize the glaring flaw with Yelp's service and, effectively, their entire business model.

    Yelp's stock has fallen from $100 per share in early 2014 to its current range of $24 per share. And with the help of the soon-to-be-released documentary, "Billion Dollar Bully", a documentary that aims to expose Yelp for what it is, a failing service that extorts small businesses, we may even see a SeaWorld Entertainment, Inc. (NYSE: SEAS) / "Blackfish" type of stock event in the near future.

    (click to enlarge)

    Tags: YELP, FB, SEAS
    Sep 09 12:29 PM | Link | Comment!
  • FDA Proposes Sugar Labeling Requirements

    It is finally becoming common knowledge that the foods we eat contain far too much sugar. The history of sugar and its use in our foods in this country is long, but to provide a simple overview:

    • In the 1960s and 1970s, scientists began collecting evidence that foods with saturated fat could raise LDL cholesterol and, therefore, increase the risk of heart disease.
    • As a result, in 1976 Senator George McGovern called a hearing to raise attention to the links between diet and disease.
    • This led to the creation of the first set of dietary guidelines in America. Known as the McGovern report, these guidelines recommended lowering overall fat intake.
    • The food industry saw this as a marketing opportunity and began offering "low fat" foods. When removing fats from foods, however, taste is compromised. To combat this, the food industry replaced fats in food with added sugar.

    Here's a bit more historical info, if interested.

    Fast forward to today. Sugar has now been linked to weigh gain, obesity, cardiovascular disease, alzheimer's disease, depression, cancer, and a myriad of diseases and health issues. (Perform a Google search for the words "sugar linked to" and see the amount of diseases that autofill the search form.) In summary, too much sugar is very bad for us, and we've been eating way too much of it for about 40 years.

    So how much sugar is too much?

    If you look on any food product's "Nutrition Facts" label, you can quickly see the contained amount and daily recommended value of calories, fat, cholesterol, carbohydrates, etc. But the recommended daily value of sugar is surprisingly absent. (Don't believe me? Check any nutrition label on any food product anywhere.) Here's an example from a bottle of Coca-Cola (NYSE:KO):

    How is this possible? Needless to say, food companies like The Coca-Cola Company make every effort to keep consumers naïve to the amount of sugar they're consuming because these products generally contain unhealthy amounts of the sweetener. And if consumers knew that the amount of sugar they were consuming was too high (over the recommended daily value), these companies would likely need to decrease the amount of sugar in their foods and beverages, which, of course, would result in a less tasty product.

    But this could all be changing soon. The U.S. Food and Drug Administration (FDA) recently proposed that the recommended daily value of sugar be added to all Nutrition Facts labels.

    The Dietary Guidelines Advisory Committee has proposed a value of 50 grams per day as a recommended daily value, which is about 10% of a person's diet if they are eating 2,000 calories per day. The American Heart Association, however, recommends that women should eat no more than 20 grams of sugar per day and men shouldn't exceed 36 grams.

    This regulation change, if approved, would be a significant step forward in our journey, as a country, toward lower obesity rates, lower cancer rates, and overall better nutrition. But food companies like The Coca-Cola Company , Kellogg Company (NYSE:K), Post Holdings, Inc. (NYSE:POST), General Mills, Inc. (NYSE:GIS), Pepsico, Inc. (NYSE:PEP), and many others in the consumer goods sector would be affected and, therefore, will likely do everything in their power to keep this change from happening.

    Further information and details about the proposed food labeling changes can be viewed here. As with all proposed regulation changes, the public is encouraged to submit comments. To submit a comment, click here.

    Tags: GIS, K, PEP, POST, KO, market-outlook
    Jul 31 7:20 AM | Link | Comment!
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