New Study: Franchise Businesses Suffer Most Under $15 Minimum Wage Increases

Increasing the minimum wage has long been a popular tactic for liberals in the political sphere seeking “fairness” for workers.  To the casual observer, the idea that someone should earn a so-called “fair wage” appeals to their moral conscience without immediately conjuring up the economic impact of such actions on a large scale.

While there has recently been a national debate about raising the current federal minimum wage from $7.25, Congress has rebuffed those efforts, based largely on evidence from the nonpartisan Congressional Budget Office that 500,000 workers would lose their jobs, wiping out any improvement in wage levels for those entry-level workers who remain in the workforce. In response, an increasing number of states and cities are being pressured by liberal activists to raise their own minimum wage.

Most localities have passed new wages based on economic and cost of living conditions. However, in some places, a unique and potentially damaging characteristic of some wage proposals has a trend to include a provision requiring families in local communities who own franchises to pay wages higher and faster than those paid by non-franchise businesses.

Take the city of Seattle or the state of New York for instance. Each passed an increase in the minimum wage to $15 per hour, both discriminatory in their own way.  In Seattle, the legislation considers independently operated franchisees as ‘large employers’ because they contract with a brand, and subsequently forces them to implement the increase faster than local, non-franchise businesses. Meanwhile, in New York, Gov. Cuomo unilaterally targeted quick service restaurants through a “Fast Food Wage Board” which consisted of no small business owner representation. This wage increase required those families who operate a local restaurant with 30 or more locations nationally to pay a $15 minimum wage, and leaving other businesses at the more modest $9 state-wide minimum wage.

Perhaps the most perplexing notion in both cases is that wages were raised under the auspices of fairness.  What could possibly be fair about requiring one family who owns a small business to implement a wage at a faster pace than another, or leaving those employees who DON’T work for these businesses at a lower rate.

To address the impact of this new trend in policymaking, new research from the Employment Policies Institute (EPI) overwhelming disproves the notion that franchise businesses could absorb an increase in the minimum wage easier than non-franchise businesses.  According to the study, franchise businesses would be impacted more, with over two-thirds of franchise small business owners saying that they would be forced to reduce staff or reduce hours to compensate, compared to roughly half of non-franchise businesses.  Additionally, 54 percent of franchisees said they would likely use more automation, compared to just 37 percent of non-franchise businesses.

“This study confirms that local franchise businesses, who form the fabric of their communities, should not be unfairly targeted for higher labor costs than non-franchise businesses,” said IFA Director of State Government Relations and Public Policy Jeff Hanscom. “Arbitrarily forcing higher labor costs on franchise small businesses will reduce employment for those who need it most, while stripping neighbors of their ability to own a small business.”

As policymakers around the country continue to face pressure from local activists seeking to raise the minimum wage to exorbitant levels, it is clear they should avoid choosing winners and losers.

At Kemp Forum, Opportunity Agenda Thrives

All too often, when Americans look to politicians in Washington, D.C. for solutions to America’s numerous domestic issues, a convoluted package of policy proposals and regulations overwhelm the menu. Rather than addressing the root causes of economic distress or poverty, politicians provide patch-work solutions that often cost tax payers, while failing those in need.

This past weekend, however, some of the most powerful thought leaders and politicians in America gathered at the Kemp Forum on Expanding Opportunity in South Carolina to buck the trend, and prescribe an avenue for alleviating poverty that focuses on people, rather than stale policy. Organized by the Jack Kemp Foundation, the namesake organization for the late Congressman and “bleeding heart” conservative Jack Kemp, the Expanding Opportunity event sought to examine why the so-called “war on poverty” has failed so many of our fellow citizens, and what we as a nation can do to enable prosperity.

Moderated by Speaker of the House Paul Ryan (R-WI) and Sen. Tim Scott (R-SC), the event included panels with six Republican presidential hopefuls and American Enterprise Institute President Author Brooks, with a focus on reforming areas from education to spurring job growth. The participants rightly noted that America was founded on the principle that everyone would have the same opportunity to succeed in life, not the same guaranteed outcome. As part of this narrative, the moderators drove the dialogue that our country is at its best when innovators and entrepreneurs thrive, not when the government continues to implement workplace regulations and social assistance programs that entrench the cycle of poverty and big government.

While everyone on stage agreed that small businesses are driving the economy, it was obvious that a litany of failed policies continue to plague the opportunity agenda.  Sen. Scott noted that in a time when young people need to develop professional skills and learn the responsibility that comes with work ethic, inane policies such as $15 minimum wage proposals will force youth unemployment rates to skyrocket, leaving yet another generation at a gaping disadvantage to compete in the labor force. As business owners reconcile with increasing costs, some will be forced to shutter their dream. Several candidates made the plea that power return to the states, arguing that bureaucrats in Washington, D.C., who are out of touch with small communities, are generating burdensome rules that make entrepreneurship nearly impossible.

Presidential politics always brings with it a plethora of idealistic proposals and rhetorically pleasing soundbites. But, at the Kemp Forum on Expanding Opportunity, audience members were treated to solutions that could start a wave of growth for the next generation. Poverty is not eradicated by simply instituting equality with social programs and regulations.  In order to solve poverty, it must be tackled at its root cause: replenishing a lack of opportunity that will enable hard-working Americans the chance to make their own American Dream.  Franchising is a clear path to giving Americans that chance. The IFA looks forward to engaging the candidates and working with campaigns to ensure that America continues to be a land of opportunity. Guided by the new messaging and leadership of Speaker Ryan, our Country and its entrepreneurs can grasp greatness and ensure that everyone has the freedom to pursue their goals, irrespective of politics.

SBA Administrator Testifies Before Congress, Tells of Progress in Assisting Small Business Owners

On Thursday, Jan. 7, the House Committee on Small Business held a hearing on the status of the U.S. Small Business Administration (SBA), and heard testimony from SBA Administrator Maria Contreras-Sweet as the lone witness.  Although the hearing was convened to address a recent report by the Government Accountability Office (GAO) that criticized the SBA for its failure to implement management recommendations dating back several decades, the Administrator took the opportunity to highlight the areas where SBA has succeeded in serving America’s small business and helping them continue to grow the economy.

In her testimony, Administrator Contreras-Sweet emphasized that, despite the criticism from the GAO and the Committee, FY 2015 was one of the most successful years in the history of the agency.  SBA backed 22 percent more loans to American small businesses, with a 23 percent increase in the dollar value of those loans compared to FY 2014.  Although lending to small businesses has increased in the years since the recession, she said, it has only returned to 84 percent of its pre-recession level, making the SBA’s role in helping small businesses secure vital financing even more important.  In addition, Contreras-Sweet shared that loan approvals to women in the flagship 7(a) loan program increased 29 percent over 2014, while loan approvals to minorities increased 27 percent and those to veterans increased 47 percent.  All of this progress, the Administrator noted, occurred while the 7(a) program has operated at zero-subsidy, with no direct cost to taxpayers.

The well-established 7(a) program is paramount in ensuring that qualified small businesses, especially franchise businesses, are able to survive and increase their production in a fragile economy.  In 2014 alone, SBA lending programs were used in the financing of nearly 30,000 new franchised units and guaranteed an estimated $6 billion in loans to new and prospective franchisees.  That number is likely to increase since SBA lending for the 7(a) program increased by 23 percent in 2015.  In 2015, nearly a quarter of all new single-unit franchises were financed with the help of SBA loan guarantees, with 17 percent of medium-sized multi-unit franchisees and 19 percent of large multi-unit franchisees utilizing SBA-guaranteed loans to expand their operations.  According to IFA estimates, for every $1 million in lending to a franchise, 40 new direct and indirect jobs are created.  These figures show that SBA loan programs are a vital lifeline to franchises and other small businesses as the small business lending market continues its recovery.

Although the Administrator focused on many of the agency’s high points, the Committee members sought clarification on the Administrator’s plans to address management deficiencies in cybersecurity, staff retention, and disaster relief programs.  Committee Chairman Steve Chabot (R-OH) pressed the Administrator for a commitment to addressing the GAO report’s recommendations, explaining that 62 of the GAO’s 69 recommendations have not been implemented.

IFA submitted a statement for the hearing record praising the SBA for its essential loan programs, while stressing the need for continued recognition of the needs of small business owners in the U.S. Congress.  The Committee will continue with its series of hearings on the oversight of the SBA this week.  SBA Associate Administrator of Capital Access Ann Marie Mehlum and Linda Rusche, Director of the Office of Credit Risk Management will testify on the status and management of the SBA’s capital access programs tomorrow at 10:00am ET.  For more information on last week’s hearing, or for more information on this week’s activity, click here.

Webinar: Preparing Your Franchise To Go International

 

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The newest webinar in IFA’s International Toolkit Series is “Preparing Your Franchise To Go International” presented by Edwards Global Services, Inc. Today more than 75% of all IFA franchisors are either in other countries or are planning to market their franchise into other countries. International franchise development represents the opportunity for additional revenue and increased brand value.  But taking your franchise global is not easy or risk free. The best time to prepare for international success is up front – before you go. This webinar will highlight what successful franchises do to prepare to Go Global successfully.

This webinar will cover these key items:

  • The pros and cons of Going Global
  • The methods and steps of Going Global
  • What is different about Global franchising
  • The international licensee and you
  • Where to take your franchise and why
  • A proven Going Global strategy
  • Keys to successful global franchising

Thursday, December 17, 2015, 11 am ET (1 hour)

Click here to register now!

Presenters:

William Edwards, CEO, Edwards Global Services, Inc.

Michelle McClurg, Chief Operating Officer, Edwards Global Services, Inc.

William Gabbard, Senior Vice President, Edwards Global Services, Inc.

 

IFA CEO Speaks at United Arab Emirates Franchise Conference

International Franchise Association President & CEO Robert Cresanti represented the association at the third annual “International Franchise Conference & Exhibition” Nov. 18 and 19 in Abu Dhabi, United Arab Emirates.

Organized by IFA member the Abu Dhabi Chamber of Commerce and Industry, the event raised awareness of franchising among Emirati firms, introduced best practices and offered a range of franchise opportunities to help diversify the UAE economy.   275 franchise companies from 27 countries exhibited, including seven from the United States.  Cresanti made opening remarks and spoke on a question-and-answer panel.

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Robert Cresanti giving welcome remarks at the IFCE inauguration

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His Excellency Mr. Mohamed Thani Al Rumathi, Chairman of the Federation of UAE Chamber of Commerce & Industry and Chairman of Abu Dhabi Chamber of Commerce & Industry is welcomed by Robert Cresanti at the U.S. stand

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Display of U.S. companies participating at the U.S. Franchise Catalog Show

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Robert Cresanti chats with Fabio Scocimara, Director of International Development, Visiting Angels

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