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The rising costs of small business …

Published 11:42am Monday, March 25, 2013

Business owners in Albert Lea share their concerns about common expenses going up

Jake’s Pizza owners Bill Anderson and Jim Johnson know the value of a good product.

When the costs of running their business increase, they do everything they can to protect that.

“The most important thing is maintaining your product,” Anderson said. “Never, ever sacrifice your product. That’s first and foremost.”

Jake’s Pizza, which has been in business for 50 years, has seen increases in the last year in the costs of food, fuel and taxes, to name a few. But through hard work and cutting costs where they can — and at times even reducing their own margins — the owners said they are able to move past the challenge and run their business more efficiently.

“It’s basically up to us to keep running a tight ship,” he said. “It’s a lot of juggling sometimes.”

 

A larger problem

In the last year alone, Anderson estimated the costs of cheese, meats and grains for the company’s pizza have increased between 4 and 25 percent throughout the year.

“Food is the primary driver for us here,” he said.

Cheese is the company’s most expensive item that goes on the pizza, and rising grain prices in turn affect meat prices.

But those aren’t the only price increases they are seeing.

If gasoline prices continue to rise and get close to $4 a gallon, Anderson said the company might have to consider paying its drivers more for a reimbursement.

He said the company is also anticipating increases in energy costs and taxes.

“Everything is increasing,” he said. “We’re just riding the waves as they come.”

The same is true for Frames-R-Us co-owner Kathy Sabinish.

She said she has seen increases in her company’s taxes and water and sewer bills, but the largest increase she’s seen have been in the costs of insurance — both for her business and for her and her husband’s health insurance.

She said at the beginning of the year she switched to an insurance plan with a higher deductible through a local provider so they could get a lower premium.

“That was the biggest monthly expense for us,” she noted. “We cut the premium in half.”

State Farm Insurance Agent Nancy VanderWaerdt said her business has seen increases in the cost of phones, advertising, wages for employees and taxes.

She has three employees.

Home Solutions Midwest President Steve Field said his company, which has 15 employees, has seen increases in fuel, material costs, health insurance and advertising.

Fuel costs are hitting the business twice, with increases both at the pump and in shipping costs. The company owns eight trucks and 14 trailers, and he said carriers have passed along fuel surcharges about 7 percent higher.

Field said he is seeing an about 8 percent increase in material costs, an 18 percent increase in the cost of health insurance and about a 4 percent increase in the cost of advertising. Environmental Protection Agency regulations are also driving costs up for certifications, training and testing.

“It is always a challenge to deal with rising costs,” Field said. “In order to be successful, we must sell our goods at a profit and still satisfy the customer. If we satisfy the customer and fail to get the profit, we would soon be out of business. If we get the profit but fail to satisfy the customers, we would soon be out of customers.”

 

Uncertainties

Mike Petersen, part owner of Security Insurance in Albert Lea, said small businesses are facing many uncertainties when it comes to insurance costs, particularly related to health insurance under President Barack Obama’s Affordable Care Act.

“I’ve been in the business since 1991, and I’ve never seen even close to this much uncertainty, and almost anxiety, because of the changes taking place,” Petersen said. “There’s a huge array of information out there that everyone is saving a lot versus people are paying more.”

In the last year, health insurance costs have increased on average about 8 1/2 percent, which he said is not a surprise considering the correlating increase in medical costs, he said.

Property and liability insurance for small businesses are beginning to “firm up,” though many of the carriers are increasing their underwriting standards.

These types of insurance rates largely depend on what the business is and their claims history.

“For those who have above average losses, the marketplace is starting to adversely affect those,” he said.

“It’s fair to say that over time, those who have done a good job at controlling those things within their control experience better pricing.”

Small businesses are also facing uncertainties over state taxes, after seeing a budget proposal by Gov. Mark Dayton in January.

Beth Kadoun, director of tax and fiscal policy for the Minnesota Chamber of Commerce, said many of Dayton’s proposals will unfairly affect small businesses and put them at a competitive disadvantage.

“The proposal that the governor put out made the business community concerned,” Kadoun said.

She said Dayton’s sales tax reform would cause hidden costs for businesses, and business-to-business services — or services that small businesses have to hire out for — would end up being taxed.

His plan also increases the top individual income tax rate, which would in turn also affect small businesses that pay taxes through the individual income tax, such as sole proprietors.

Kadoun said studies have shown high marginal income tax rates negatively impact migration into the state and make it harder to attract talent.

 

Making up for the difference

Despite the uncertainties, local business owners said they are finding ways to reduce costs so their businesses can survive.

Anderson said Jake’s Pizza tries to handle its cost increases through savings in specials from its food distributors and through cutting costs on its paper products and pizza boxes.

Field said Home Solutions is running more efficiently by combining shipments and scheduling more effective routes. The company has also reduced inventories to only what is needed and spends more time using social media and the Internet to advertise and promote.

Sabinish said she and her husband take small steps to increase efficiencies in their business.

They turn off the track lighting in their building when nobody is in the store and dress warmer in the winter.

Her husband also sells telephone systems for a side business.

VanderWaerdt said she handles increases in running her business by working harder and trying to keep her expenses down.

“I do work with my income to make it work the best it can and keep it at a financial level that I can afford and still help other businesses too,” she said.