A Small Businessman’s Manifesto
About the author: Ryan Wager is the owner of the Brick Yard, a local restaurant and bar on historic Union Street in San Francisco.
As a restaurant owner in San Francisco, my first priority in running my business is to make an income. Providing jobs, tax revenue for my community, charitable donations, and a place for my customers to mingle are all wonderful bonuses built upon that initial goal. However, in the wake of our current national discussion, I wanted to give my perspective as a business owner on how things like the corporate tax rate, minimum wage, and healthcare, impact how I choose to run my business. I give my perspective not as an economist, politician, republican, or democrat, but as a regular guy giving a first-hand report on my experiences.
Let’s first talk about that much-hated word — “taxes”. At the end of the year, when the profits (or losses) have all been counted, we are met with the dreaded realization that we are not done spending, because it’s time to sign a check over to the IRS for our corporate tax bill. Typically, this policy is perceived as a “job killer” and one that interferes with being successful as a small business owner.
However, when faced with a higher corporate tax rate, I actually see a reason to spend my profits in an effort to grow my business instead of just pocketing them. This is simply because I see the corporate tax rate (which is currently around 39%) as a discount or coupon which offsets the cost of many things I buy. This is because I know at the end of the year, most of my business-related purchases can be written off, which will lower my tax bill accordingly. If I need to spend $100 on something that will better The Brick Yard, I feel like I have a $39 coupon towards the purchase of that item because if I didn’t spend that money, I would owe taxes on that money, to the tune of $39. It’s obviously not the only decision metric I use, but compare it to the 20% off shopping coupon sitting on your table right now.
This alone is not a reason to spend money, and the service or good still needs to benefit the business or it would just be frivolous. Alternatively, this means that the lower that rate goes, the lower the value of the coupon, and the less incentive I have to spend that money, thus the more likely I am to take it as a profit and pocket it, instead of spending it on my employees or 3rd parties as an investment in my business.
Therefore, the higher the corporate tax rate, the more likely I am to spend my profits instead of just pocketing them.
Now let’s jump to the minimum wage and its effects on my labor budget. Labor in terms of hiring, wages, staffing for shifts, etc. is actually a simple formula but also one that gets diluted the most by people with an agenda. My main agenda, as I said, is cash flow. Simply put, I want to have as few people on my payroll as possible, so I can maximize the amount of positive cash flow I can get from my business revenue. Period. This means that the only reason I would ever want to have another staff member is either because the number of customers I have has crossed a threshold where I am no longer maximizing their spend in the bar, thus costing me money, or because having another member on staff will create an incentive for more customers to come in or spend more. Whether I am paying this person $5 or $15 an hour doesn’t honestly factor into my decision making process on the ground, because I know that if I am hitting the sweet spot in terms of staff (supply) to customers (demand), I am making far more than that labor cost. I want the restaurant as full as possible for as many hours as possible, for everyone to drink or eat as much as they want, and for customers to never skip a round because they can’t get good service. My goal is to align staffing (supply) with customers (demand) as well as possible in order to maximize positive cash flow.
Another great thing about the hospitality/restaurant industry is that by me and my fellow restaurateurs paying our employees more or staffing them more hours, we are essentially creating more demand for our products. When servers, cooks, bartenders, etc. have more free cash, the more they in turn can spend back into the industry thus creating more profits for the businesses which then frees up more resources to pay them more and the cycle repeats itself. Also, when we pay these workers better, we get the added bonus of happier employees which helps create a better work environment and a better experience for customers. Happier employees make for happier customers, and happy customers means more customers come in and spend more per person when they come in, thus feeding the cycle as well.
At the end of the day, the less my employees have to worry about things like how to pay tuition, loans, their health care, or their rent — the better it is for everyone, including me as the business owner. As their employer, it’s also incredibly satisfying to know my little bar is responsible for making their lives that much more enjoyable because these people are basically a part of my family. Though these are all added benefits, my main purpose with this endeavor above all is to make a living. My point is to identify how paying all my employees a living wage helps me reach that goal.
the less my employees have to worry about things like how to pay tuition, loans, their health care, or their rent — the better it is for everyone
Another question that comes up is whether or not these government policies have an impact on what I will charge for my products. The short answer is yes, they do, however they do so indirectly. The reason is because I set my prices at the rate the free market allows, thus maximizing my cash flow by constantly finding equilibrium pricing. If I set my prices too high, some people will still buy, but some people won’t, and that hurts my cash flow. Set my prices too low, and I may sell more items, but I won’t be making as much and actually may endure other costs in terms of impact to your supply chain (e.g. having to order more times and process more deliveries). My customers decide my pricing, and in turn their buying power helps dictate what price they are willing to pay. In San Francisco it’s incredibly expensive to live and eat compared to almost anywhere else. If the people making minimum wage can’t make enough to come watch the Warriors game and have a beer, I lose money. In my industry, a lot of my business comes from other people inside the hospitality industry, so the fact that in my city each of them is paid a decent wage of around $13/hr before tips means that I am afforded a built-in supply of clientele willing and able to pay the prices needed to succeed in this market. If every hospitality business paid less per hour, I would have less customers who spend less per visit.
My customers decide my pricing, and in turn their buying power helps dictate what price they are willing to pay.
Finally, when it comes to the decision of whether or not to provide health care for my employees, some politicians and media pundits would lead you to believe that it affects choices made by me about how to run my business in terms of cutting hours, pay, increasing pricing, etc. in an effort to offset the cost. I however chose to set up health care for all my employees, though for some it was not a requirement. I did this because not only did it feel like the right thing to do, but also because I’ve seen that my workers produce more when they don’t have this major thing to worry about. Thus by spending a little more here, I am ultimately able to increase cash flow through the increased productivity of my happier and more loyal labor force.
So there it is, my manifesto on how I run The Brick Yard in San Francisco and the impact of government policies on how it is run. A high but fair corporate tax rate, living wages for all my employees, fair health care options, and a happy workforce all work hand in hand to make my business successful. I stand by it as a matter of fact because it is in fact how I do things, and not as a plea for others reading it to be swayed in any other direction. Hopefully it’s a use case that creates a real world discussion based in reality versus the hypothetical, something which seems unfortunately to have strangled our discussions for quite some time and typically is slanted for the gain of the person making the pitch. In this age of politicized agendas and fake news, I think we could all use a little more dose of “real” in our lives. I hope you have enjoyed hearing my version of that real, and look forward to your thoughts and comments.