The Hell-Or-High-Water Clause
Thinking about leasing equipment? The risks may be greater than you realize.
Good morning!
Here are today’s highlights:
Gas stations need to find a new business model.
America’s intellectual property laws no longer encourage innovation.
The forces driving increased wages may be easing a bit.
Could laws requiring employers to disclose salary ranges have an upside for employers?
FINANCE
Leasing equipment can bring years of pain: “Small-business owners often rely on leasing for the equipment they need, from trucks to restaurant ovens. It’s a way to get set up without having to pour in a lot of cash. The pandemic upended many of those small businesses’ plans. In the process, it has fueled bitter clashes between owners and leasing companies. The culprit is a provision in most lease and finance contracts that binds owners to make years of monthly payments, no matter what happens to their business and even if the equipment doesn’t work or is returned. The industry calls it the ‘hell or high water clause.’”
“Nicole Carranza and her husband leased $59,000 worth of equipment for a restaurant they planned to open in La Habra, Calif., just before the pandemic. After it began, they couldn’t finance additional equipment, so they dropped their plan and canceled the order.”
“Pawnee told the Carranzas they still had a lease contract. It said that after a deduction for the returned funds, they owed it nearly $70,000 in payments that they would have made over the 55-month lease if they had received and kept the equipment.”
“The Carranzas in turn filed for personal bankruptcy, mainly due to debt to the leasing company, Ms. Carranza said.” READ MORE
HUMAN RESOURCES
The forces driving wages to rise and employees to quit may be easing: “Quit rates in leisure and hospitality have dropped to 5.6 percent in February 2022 from 5.9 percent in November 2021, which suggests demand for workers has eased. In concert with that, wage growth is moderating. Rank-and-file leisure and hospitality workers are making 14.9 percent more than a year ago, but wage gains in that sector have dropped or held steady for three straight months.”
“‘While quitting is still elevated and wage gains are still elevated, a lot of the particularly advantageous situation those workers were in summer 2021 has faded a bit,’ Mr. Bunker said.” READ MORE
Could a New York City law requiring businesses to post salary ranges actually be good for employers? “With the deadline approaching, employers have been consulting attorneys on how to comply, setting compensation ranges for each job title and coaching managers on how to explain the numbers to existing workers. At the same time, business groups have worked to get the law postponed or changed before it takes effect May 15. An amendment to the law, proposed last month and revised in recent days, calls for implementation to be delayed until November.”
“Many employers are concluding that New York’s law, and others that passed before it, such as a pay transparency law in Colorado, might be just the beginning of a wave of similar legislation, said Gerard D. O’Shea, a partner at Cooley LLP.”
“Hari Prasad, founder and CEO of Yosi Health, a New York-based healthcare software company that employs four workers with plans to hire another 10 this year, said he looks forward to being able to compare salaries at the company’s competitors.”
“He added there might be a potential upside to including salaries upfront: fewer surprises at the end of an interview process, when an applicant is typically told the pay. ‘This is going to make the hiring process more efficient,’ Mr. Prasad said.” READ MORE
SIDE HUSTLES
Shopify lets its employees try a side hustle, “even encouraging them to start their own stores so they can see firsthand what it's like to use the platform and what features could be improved. The company also allows employees to expense up to $1,000 in business-related costs per year to encourage entrepreneurship. ‘Shopify is the only company in the world where you can have a million-dollar side hustle and still work your day job, because they're so supportive,’ Macdonald told Insider.”
“Greg Macdonald started his bath-products brand, Bathorium, in 2014 using Shopify to power his online store.”
“So when he was approached by a friend two years later about working for the e-commerce company, he was familiar with the platform, but he didn't know much about the company itself.”
“‘As Shopify grew, so did Bathorium,’ Macdonald said. ‘Everything I learned from Shopify about e-commerce strategies, UX, UI, talking to other brand founders — my cup was being filled every single day with so much motivation, so many ideas, so much creativeness.’”
“He ended up finally leaving Shopify in April 2021, when Bathorium reached $5 million in annual revenue. Bathorium had 35 full-time employees at the time.” READ MORE
By the way, if you make more than $600 from an online side hustle, the IRS will know: “This change, which is beginning to ripple through e-commerce, tightens the tax reporting on income earned by people selling goods and services through online platforms. Starting this year, the platforms must send a Form 1099-K to the Internal Revenue Service reporting an individual’s total revenue if platform earnings top $600. Now, many more sellers, resellers, and gig workers than in the past will have their platform earnings reported to the IRS. The upshot: They may have to pay taxes they haven’t been paying, or else keep complex records showing why they don’t need to.”
“Platforms like eBay, Airbnb, et al. have had to send 1099-K forms to their sellers for years. But the prior threshold of 200 transactions and $20,000 of revenue left room for significant tax dodging.”
“John Biscuti, 36, is a New York-based guitarist who works in a wedding cover band in addition to his day job at a tech firm. He enjoys buying, trying out, and then selling vintage guitars for a small profit or loss on Reverb, a platform for musical instruments and gear. Now, he’s not selling at all.”
“‘I want to avoid tax hassles, and so do a lot of people I know,’ says Mr. Biscuti. ‘If I sell, I’ll use something like Craigslist, but that means a far smaller market.’ Craigslist doesn’t issue 1099-Ks because it doesn’t transfer payments between buyers and sellers.” READ MORE
RETAIL
Gas stations are looking for a new business model: “While some gas stations have taken the leap and installed charging ports alongside their pumps, people tend to do the lion’s share of their EV charging at home. And since EV chargers can be installed in almost any location that’s connected to the power grid — they’re now available in office garages and rest stops, and will soon be in some Starbucks parking lots — the gas station is increasingly unnecessary for some Americans.”
“Boston Consulting Group analysts estimate that if EVs do take off, as much as 80 percent of the fuel retail market could be unprofitable by 2035.”
“Should demand for gasoline completely disappear, many of the more than 100,000 stations throughout the country would be at risk of going out of business.”
“To adjust this business model for the EV era, some gas stations are now installing Level 3 chargers, which can deliver as much as 20 miles of range per minute, alongside their old pumps and convenience stores.”
“But for many gas stations, the cost of an EV charger outweighs the benefits. The charger itself can cost tens of thousands of dollars, which is a tough expense for a small business.” READ MORE
GOVERNMENT SUPPORT
Businesses are objecting to efforts to claw back Covid-19 aid: “At issue is about $5 billion that Congress allocated for three small-business aid programs but which hasn’t yet been spent. Some lawmakers want to repurpose those existing funds for healthcare, rather than allocate new money, because they are increasingly focused on reining in the federal deficit and spending amid a surge in inflation, which is at a 40-year high. The debate underscores the struggle to fulfill requests made by the Biden administration to address pandemic needs, while also accommodating Republican demands to not spend new money. Lawmakers have been forced to make difficult choices about where to pull funding, including from broadly backed causes such as supporting small businesses.”
“The proposal to claw back funding is ‘not in alignment with the professed need of small businesses and the professed desire on both sides of the aisle to help small businesses,’ said John Arensmeyer, chief executive of the Small Business Majority, an advocacy group.”
“Congress is set to continue debating the Covid-19 funding measure when it returns from recess later this month.” READ MORE
TAXES
The Economist has a kind word for the IRS: “Even without the pandemic, the IRS was struggling, the victim of chronic underfunding. Spending on the agency has declined by nearly 20 percent since 2010. At the same time, the number of tax returns has increased by 20 percent. The backbone of the system, a nationwide taxpayer database, is built on top of a 1960s computer language rarely taught in schools. One major element of President Joe Biden’s legislative program is a funding boost for the irs. Yet that is stalled, along with much of the rest of his agenda.”
“Despite its awful backlog, the IRS has, from another perspective, had a very good pandemic. It has played a critical role in delivering support to Americans.”
“For each of the three rounds of stimulus payments, the IRS was the conduit. Within two weeks of Mr Biden’s signing of the stimulus bill in March 2021, for instance, it sent out $325 billion via 127 million separate payments, mainly by direct bank deposit.” READ MORE
LOGISTICS
Texas Gov. Greg Abbott has lifted his truck-inspection order at the Mexican border: “The new Texas-led inspections went into place in the last week, but they were decried by White House officials, who said the trucks were already inspected by federal officials and that inspecting the same trucks again by state officials created huge traffic jams. The traffic jams were expected to soon lead to food shortages and price spikes, among other things.”
“He was under tremendous pressure from business groups to back down because of major delays in deliveries, particularly as fruit and vegetable produce sat at risk of spoiling. It is unclear how long it will take for the backlog to clear and traffic to normalize along the border.”
“The two-term Republican up for reelection in November faced the increasing ire of business owners who echoed Little Bear Produce executive Bret Erickson’s sentiment that, ‘As a Texas business, we were really confused and disappointed by this decision by Gov. Abbott, in a state that touts itself as business-friendly. This was a direct hit to Texas businesses.’” READ MORE
CLOSING TIME
Forlini’s, a beloved Italian restaurant in New York City decides to close—and demonstrates the value of buying the building: “Since the 1950s, the family-owned restaurant — just down the street from the Manhattan Criminal Courts Building — was a standby for the courthouse crowd, serving lobster fra diavolo and chicken cacciatore to generations of judges, lawyers, secretaries and bail bondsmen. It underwent an unintended metamorphosis in 2018, after Vogue magazine hosted a starry pre-Met Gala party there, luring a new breed of regulars that included magazine editors, designers, stylists and skaters. The art crowd and the downtown literary set also adopted Forlini’s as a canteen.”
“The Forlini family recently sold the building that housed their establishment for an undisclosed sum to an unknown buyer. The family had purchased 91-93 Baxter Street in the late 1960s, and it had been listed for $15 million in 2019.”
“‘In our hearts we both wanted to stay, but then you think of reality,’ Derek Forlini said. ‘He’s 69, and I’m 65. It’s hard, but we’re leaving while we’re still on top.”
“‘We have other family involved with the building, so it’s also not that simple,’ said Joe Forlini, explaining that they owned the property with eleven extended family members who weren’t affiliated with the restaurant, most in their 60s. ‘They all wanted to get out, so we decided to go along with them. It was time.’” READ MORE
INNOVATION
Opinion: It’s time to save America’s patent system: “The agency was created more than two centuries ago for the express purpose of protecting and promoting innovation. For most of the ensuing decades, it has stood as a beacon of American ingenuity. But critics say that by the time the office issued its 11 millionth patent last year, it had long since devolved into a backwater office that large corporations game, politicians ignore and average citizens are wholly excluded from. As a result, not only is legal trickery rewarded and the public’s interest overlooked, but also innovation — the very thing that patents were meant to foster — is undermined.”
“To secure a patent, an invention must be truly novel and nonobvious, it must be described in enough detail for a reasonably qualified person to build and use it, and it must actually work. The problem is these rules are poorly enforced.”
“The Theranos debacle, to take just one other example, was touched off by officials who granted scores of patents for a device that had never been built and that turned out not to work. The company was able to secure those patents without disclosing almost any technical information about its product.”
“It will take comprehensive reform to repair these deficiencies, but one simple thing that officials can do right now is give patent examiners more time and resources to do their jobs.” READ MORE
PUBLIC RELATIONS
A steakhouse franchisee in Kentucky flew a Ukrainian flag—and suffered a nasty backlash: “Ben Ashlock thought he had settled things with a customer complaining about the Ukrainian flag atop the Kentucky steakhouse he manages. Ashlock had opened up to the man about his personal connection to the war-torn country: He and his wife had adopted a teenage son from Ukraine three years earlier and forged friendships in the process. When Russia invaded, he wanted to show his support. The 41-year-old general manager of a Colton’s Steak House & Grill franchise figured that was it. It wasn’t.”
“About a half-hour later, hate started coming from all fronts — the restaurant’s phone, Facebook page, and reviews on Google. Over the past week, the firestorm has kept raging in Bardstown, a city of about 13,500 in central Kentucky.”
“Many [comments] were removed, but before they disappeared, Ashlock took screenshots, some of which he shared with The Post.”
“‘I hope that Ukrainian flag is gone,’ one user said, adding a face-with-monocle emoji. ‘I prefer my steak without a side of Nazi.’” READ MORE
THE RUSSIAN INVASION
From a Ukrainian entrepreneur:
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