Costs from regulations pile up, hurt small-business profits

It's getting more expensive to be an employer, and small-business owners say that's making it harder for them to make money.

The health care law, minimum wage increases and paid sick leave laws in some states and cities are increasing costs. Small companies also face the prospect of higher overtime expenses under a proposed federal regulation.

"We're going beyond the point where we can comfortably operate a functioning business and meet the requirements of these laws," says Diana Lamon, who owns a Los Angeles restaurant, Poppy & Rose and a food truck, Peaches' Smokehouse and Southern Kitchen, with her husband Ryan.

The growing costs the Lamons face include:

• The $9 hourly minimum wage in the city will rise to $10.50 next July, the first step toward a $15 minimum in 2020.

• They may be required to offer health insurance starting Jan. 1 if they go ahead with plans to offer dinner at the restaurant, which now serves breakfast and lunch. The expansion could give the Lamons 50 or more workers, the point at which employers must provide coverage.

• Employees must be given paid time off when they're sick under a new California law. When workers are out sick and need to be replaced, an employer pays two salaries.

Owners faced with these accumulating financial demands might be saying, "it's always something." But dealing with continual challenges is part of running a small company, says Phillip Kim, a professor of entrepreneurship at Babson College.

"It's the nature of doing business, and those who can be resourceful and be able to be nimble in the process will have a better chance of succeeding," he says.

The Lamons are looking at ways to increase revenue and cut expenses. One option is catering; their restaurant is surrounded by businesses and new high-rise apartments, and they believe customers will be interested in ordering food for events and parties. They're considering growing their own produce in a rooftop garden.

Higher expenses from regulations come on top of other rising costs. The Lamons are paying more for water because of California's severe drought. Eggs, a staple in a breakfast restaurant, cost 30 percent more this year because of a bird flu that forced farmers to destroy thousands of hens.

At his restaurants and bookstores, Stephen Mayer is also trying to keep costs from wiping out profits.

A 14 percent increase in San Francisco's minimum wage from $10.74 to $12.25 on May 1 will cost Mayer's restaurant, Cafe de la Presse, about $225,000 a year, more than half the $400,000 profit it made in 2014, Mayer says. He's already expecting that when the government's overtime regulation becomes final, staffers at the restaurants and bookstores will work seven hours each day instead of eight.

A thinner staff is an easier alternative than raising prices, especially in a bookstore, Mayer says.

Karen Port is concerned about a bill to raise the current St. Louis minimum wage to $11 by 2020 from the current $7.65.

She's paying between $600 and $1,200 a month for each of her four employees for health insurance, and she's worried that her costs from the health care law will keep going up.

She has another problem: Many people haven't been buying luxury items like the hot tubs she sells at her business, Mirage Spa & Recreation.

Joyce Rosenberg is a business reporter for the Associated Press.