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How The Government Affects Your Business


Transcript of the video: How The Government Affects Your Business

Hey, welcome to another episode of reservations. I’m Jeff Harrison and my friend and partner is down under somewhere in Australia. He’ll be back in a few weeks. And in the meantime, we’ll see if we can somehow figure out. Where he’ll be on when it’s not like 2:00 in the morning and it’s 7:00 in the morning here. I’m not sure exactly how we’re going to do that, but we’ll figure something out.

Hey, today I want to talk about a. It might sound a little political. But it really is more simply, how far should the government go in telling you what you can and you cannot do when you run into business. Now let me set this in context. We were down visiting some friends in San Diego this weekend and they were asking about this show and so she shared, the people were visiting, shared an article with me and I just want to put this out here for thought because there are only seven states in the United States that have decided to do this. Let’s talk about how this affects their business.

Beloved French Bistro

So the article is from the San Diego magazine is in, it’s entitled, Good Night Cafe Chloe, it says, San Diego’s beloved French bistro was closing and it has closed as of this recording that closed on July 8th due to California Unfair Labor Laws. Now let’s talk about this a little bit. I just have to read this a little bit, verbatim because it makes so much sense of better than I could probably say it. It says the sturdiest pretty canary has been found dead in the coal mine.

How The Government Affects Your BusinessThis is not good news for the other canaries, the canary is Cafe Chloe, the charming as hell French bistro that for 14 years brought sophistication and sex appeal and steak fruits to the east village when no one wanted to open up in that neighborhood because of crime owners, John Clute and Alison McGrath, plus former partner Tammy Radcliffe took the risk now. So what they did is they opened this restaurant and it worked beautifully. It’s just a small little cafe. We’ve eaten there before. It’s lovely. They had great desserts.

What’s happened, these seven states have said, hey, we’re just going to raise the minimum wage. Like in California, the minimum wage is $15 an hour. So what that means is everyone in that restaurant is paid $15 an hour. Now how is that different from some of the other states, and I may be a little off on this, but I think you’ll get the gist, is in those other 43 states, what happens if I’m a server or a waiter or waitress, then I get paid at a lower rate because I get tips, right? Well, in the seven states, including California, they’re saying, hey, everyone has to be paid $15 an hour.

It’s Not Something We’re Used To

So what that does, it drives up the cost of that restaurant who has a wage staff. It drives up the cost of doing business plus $15 an hour. Not that that’s not a good wage, that’s too much or too little. That’s for another debate in for someone else to talk about. Let’s just talk about what’s happened in this restaurant and in California. So what happened is, this restaurant said, I just can’t. I just can’t afford that. It just doesn’t work because I cannot pay my waiters and wage staff $15 an hour.

Then they make tips above that because what happens is the patron start saying, hey, okay, we’re absorbing the $15 an hour because we see it in the prices of the menu go up, or you have to put a surcharge on the bill, which they said the owners of the restaurant Alison McGrath said I just couldn’t do that. It felt creepy. It felt like, you know, just didn’t feel right because that’s not something they’re used to. It’s almost like saying, hey, you have to pay in advance on the service, even if the service sucks, right?

So that’s the whole idea of a tip. It’s basically on did I get good service? Was I taken care of as a guest? Well, and did that person do their job at a level that was not just expected, but maybe a little above and beyond. And I want to give them a tip. I want to give them a gratuity to say thank you. Well, so what it’s done, it’s now I think starting to change the face of how restaurants will start to operate.

The Ripple Effect

Now, let me just give you a little bit of an idea. There’s a restaurant in the San Diego area and our friends live in Imperial Beach, but there’s one also in Coronado and then in other areas and it’s the Coronado Brewing Company. Well, it’s a little different in the one in Imperial Beach because when you go in there, it’s one of these restaurants where you actually go up to the counter, you order, and then you set in a restaurant-style atmosphere, but there’s no wage staff. So in other words, I don’t have to worry about tipping anybody or that type of stuff.

I think that’s probably the direction more and more restaurants may start adopting because of what’s happened to this law. Now let’s talk about the ripple effect because this is just a rock dropped in a pond. What we see is when that happens, we see people who used to make a very good living or love to do this, the wage staff now have fewer options on where to work. Now, a couple of weeks ago, maybe even last week, I talked about there are a million restaurants here in the United States. And this is a national restaurant association put this out and said there are a million restaurants in the United States, 700,000 of them are standalone kind of mom and pop if you will. They’re not a franchise that they don’t have that big corporate veil over them to protect them.

When Is The Government Overstepping?

So what happens is out of those 700,000 restaurants, one-third of those in the first year will not make it. They’ll, they’ll just go by the wayside for one reason or another and that article is again, it’s the National Restaurant Association. Look it up and you can get the exact details on that. There are some causes for that go beyond what we’re talking about.

The other one third will struggle. They’ll struggle to survive and only about a third of those will actually flourish. So when that happens, you take that. I think you’re going to be moving that one-third of the ones in these seven states and that was struggling and I think you’re going to force them into that one third that will fail. Because it’ll be financially it will be too difficult to operate. So my question today is when is the government overstepping? When are they getting to the point where it’s no longer feasible for a business owner, a restaurant owner to stay in business and employ people?

Compromise On Labor

Now this place in San Diego had 25. They had 25 employees. That’s 25 people that lost their job. This is just one example. There could be thousands of examples in the state of California as big as we are, right? So the other thing that’s interesting, oh, by the way, not only if I work there as a server, do I have to get minimum wage, but the business owner. Oh, and, and you know what? Any of the tips that go in there or not figured into my wage. And that’s the big thing. Let me just look this up real quick because I want to get this correct.

It says the fact that California has no tip credit. In other words, if I got, you know, a $100 more a week in tips, the business owner doesn’t get credit for that. In other words, me as the server, I don’t pay taxes on it. But now here’s the interesting thing. It says the fact that California has no tip credit makes it almost impossible. We never wanted to raise our prices so people couldn’t come here. It’s a friendly little cafe. We wanted to compromise on labor and we wanted to pay our kitchen people as much as possible. We weren’t willing to give up the specialty, produce something that they got to give. In other words, they really sourced their items so that they were unique. They weren’t just run of the meal kind of things.

It’s Overregulated

I just want to point out this. Let’s see. There was a piece in there that I thought was very significant. Oh, here she is. She says, and here’s a new one. They tax you on comps now, in other words, if she comes to a dinner or you know, you come into the restaurant and just, we just want to take care of you. Well here’s the thing, they tax you on that now. The food they gave away to their staff for meals as a thank you on and thanks to regular customers, the state government tax him $70,000 on that last year. She said, we just put in a new grease trap last year and the city just came through and said, hey, you need a new one. So it’s overregulated, I always say it’s like setting on a bale of Hay with an open flame.

In other words, you just don’t have a chance or chair purged on the edge of a cliff. So the thing about this is this regulation, while somebody, someone or someone’s who sat in government thinking, Hey, well this seems like a fair thing because we want to get everybody’s wage up. I’m not sure they thought it all the way through. They saw that first trip on said that you know, this will get me reelected or whatever that might be. This will look good on my resume because I voted for that. Let’s raise the minimum wage to $15 or whatever that number is. But then they didn’t see the trickle down effect. You know, what really happens?

Do You Think This Is Fair

This particular restaurant, Chloe’s, they were in that upper one, third echelon that they were not just struggling. They are not just existing, they were being successful, but this regulation put them out of their business.

So my question today, and I look forward to the comments, I’m not looking at them right now just because there’s a lot of screens going on is do you think this is fair? How would you now walking into California restaurants are one of those seven states that have this same regulation? They don’t give tip credit to the business owner, but yet they tax them on them. In other words, now what happens is the federal government looks or the State looks at all the receipts and they say, well, here’s all this money and here’s how much tip was brought in.

We’re still going to tax the business owner on that, but they’re not going to give credit to the wage staff for receiving those tips. So it’s they’re getting hit in both directions. They had to raise their minimum wage and they’re not getting credit for any tips brought in, but they have to be taxed on it.  It’s so brutal. It just doesn’t make any sense.

How Would You Act

So again, how would you act? For me, after she showed this to me, and quite frankly, it wasn’t totally aware of this, that 43 other states, I think they have their oars in the water. In other words, they’re thinking clearly the other seven states. I hope you’ll revisit that, not just because of what I said, but what this is causing to an industry that really is the backbone of almost any city. I mean, we’re talking hundreds of thousands of restaurants over million in the United States that you’ll reconsider and say, wow, wait a second. We didn’t think about that.

Maybe we should make not maybe let’s make a tip credit so the restaurants have a chance because now when I walk in after I read this, I’m thinking, Hey, every time I go into a restaurant where there’s a wage staff, I now know that there are minimum wage is not like it used to be. This lady who gave this to me, she said, hey, when I was a kid and I was a waitress going through school, I got ninety cents an hour. Plus she said, but I’d make sometimes a couple hundred bucks a night. Well, that’s how she made money.

She didn’t care about that minimal amount of hourly wage she was getting because she knew if she hustled, she delivered great service. Then she will be rewarded for it. It’s not going to happen now, as I was going to say, I’m walking now and think, why would I give a tip? This person is making 15 bucks an hour.

How Are You Going To Deal With This

That’s what I’m expecting and I’m seeing it also reflected on the cost of the food. I’ve seen it because now I know the owner has to make up that. So why would I give a tip when that’s just great service is expected.

So I look forward to your questions or your comments on this. I think it’s something that I hope in the future I’ll reach out to some local restaurant owners and ask them, hey, how are you going to deal with this? Will you go to a situation where it’s a no tip policy? So when I walk in, I don’t feel that extra burden of saying, Hey, not only do I see that the cost of your service or excuse me, the cost of your goods have gone up. Because let’s face it, anytime that, that a business owner experiences wholesale increased costs, which this is what this is, it will have a trickledown effect. So while it’s, hey, really good, it’s Ooh, not so good because now when I go out to eat, instead of it costing me x, it’s x plus a percent.

That’s the only way the business owner can survive. That’s reality. So I may get to the point where say, you know what, and I walk in a restaurant in one of these seven states, I’m not leaving a tip so it hurts everybody, but now it’s a place I can afford to go. Or I might say, you know what, I’m not even going to go to those kinds of restaurants. Because I know they’re incurring this extra cost and it’s going to be showing up in their menu and I’m going to start going to some of these other restaurants.

This Show Is For You

Like a friend of ours who just opened up a new restaurant. Was it October? I think it was, or November of 2017. Her restaurant is different from other restaurants. She has where she does have a wage staff to a no wage staff. You go up in order, go and set and you’re going to go set, and then they’ll bring your food, but beyond that, you’re getting your own water, whatever it is. Now, they’re not rude or anything that’s not the case, but that may be driving those business owners to move to this model. So how do you feel about that?

Business owners and restaurant owners? Again, this shows for you. I look forward to your feedback and tell me how you’re dealing with it. Again, thank you so much for joining me. My name is Jeff Harrison with Reservations. I’ll see you again tomorrow. Please make sure you comment below and I look forward to.

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