California's small businesses are trapped in a costly 'vicious cycle,' local leaders say

For 25 years, Mike Georgopoulos – better known to his friends as “Mikey G” – has built a legacy in San Diego, opening 30 restaurants in the last decade alone. But today, the veteran businessman says the California dream has been suffocated by a math problem that no longer holds together.

With raw material costs skyrocketing and energy bills up 24%, Georgopoulos said a staggering 2% of costs are directly incurred before a single burger hits the grill. In an industry where a 5% profit margin is considered a win, Georgopoulos warns that owners are now “trapped” in a “vicious cycle” of fuel prices and what he calls regulatory rules that make them “work for peanuts” just to keep the doors open.

“We have built more than 30 restaurants in the last 10 years. The barrier to entry is crazy. It takes years to get the permits and the right. It costs a lot of money, and there is a lot of money at risk before you have your prize of the right permits. So you may have to risk some money and not get what you need,” he told Fox News Digital from his new brewery.

“They work for peanuts because not only can they do it, but they're trapped. They can't get out. They have a business, they're employed, they have nowhere else to go. So they're in a vicious cycle, and there's nothing coming out the other side in terms of profit,” Georgopoulos added. “Sticker shock, that's for sure.”

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Increases in energy and electricity costs for California small businesses began to rise in 2022 after the pandemic, according to the restaurant, but bills saw what it described as a double-digit increase since the conflict involving Iran escalated a month ago. At this point, Georgopoulos is “constantly changing” the prices on his menus, but admits that prices should have increased 100% in the last two years.

“It's very important. It's a lot and it's going up. It's not going down,” he said. “But there's an upper limit to what people are willing to pay before they decide to cook it at home. So we have to lower our prices in some areas and keep our menu prices competitive… In California, our workload is as high as anywhere in the nation, and we have no debt, which is disappointing, to say the least. So we have to reduce labor costs by reducing labor, making shorter shifts, making the guest cut the shift, and then removing the shift… that's the struggle we go through every month.”

“Obviously cash flow is clearly affected by what we're dealing with today. It's not only gas prices, but turmoil in what the future holds for small businesses. But it's clear that from anywhere from accounts receivable to accounts payable, we're seeing some slowness in those aspects. That basically tells us that the pressure is there, and Cardi Tehran's company has a mountain of Cardi Tehran, “O in the growing company of Cardi Tehran, “Money Conied more than $12 billion in small business loans and helped Georgopoulos, he told Fox News Digital.

“Especially in California, we have probably the highest fuel prices anywhere in the country, and it directly affects the small margins that the transportation sector operates under. So it has an immediate impact,” said the CEO. “The pump obviously affects the way people hire, the way people move their deliveries, the surcharge, the prices of their products, all those things are affected.”

A spokesperson for the California Energy Commission told Fox News Digital that “California is committed to providing energy to all citizens,” adding that affordability is a key factor in developing a clean energy future. The spokesman also said that electricity prices in the province are outside the jurisdiction of the commission.

Despite the pain at the pump, the latest data from WalletHub highlights the pressure California business owners have been feeling for a long time. An analysis of more than 1,300 small cities found that California is home to the toughest places for entrepreneurs, with the top 10-plus rankings taken by California municipalities alone, including Pacifica, Danville, Castro Valley and Saratoga.

According to the Public Policy Institute of California, the private sector employer base has grown 52% since 2005, more than double the 21% increase for public sector companies.

“It's very expensive to remove an organization and people and their customer base from the nation. So for those who are lucky enough, we see that happen. But most of Main Street doesn't have that opportunity to do that,” Tehrani explained. “And we're lucky in California, it's one of the biggest economies in the world. We have a lot of entrepreneurs here who want to live here, and they want to build a business around them. Some of those are serial entrepreneurs who are building new businesses that may not comply with the historical rules of having a lease here, having employees living here.”

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“We are losing workers in part because it is less expensive for them to work in many rural areas except where they can live. We are also losing workers because we are dealing with the problem of homelessness that you always hear about and the inconvenience that comes with that in the city of San Diego,” said Georgopoulos. “You pay more taxes, you make less tips, and you get less hours… We have 700 employees to think about every day… We want them to come to work and make money, and we don't want their costs to be so high.”

Another big issue: California's legal and regulatory landscape – business owners are being targeted by what Georgopoulos describes as “shakedown” lawsuits related to wage and hour laws, being forced to settle or spend six-figure sums on what he calls frivolous claims; and law-abiding owners face draconian health inspections and permit requirements, while illegal, unlicensed vendors operate “with impunity” in the same areas.

“The laws are very favorable in California to allow these law firms to do this. So what is being done has a cumulative effect, right? A given restaurant can spend $100,000 in one year facing lawsuits … These lawsuits are killing us,” Georgopoulos noted. “And the laws that go on are just… too taxing… There's a hundred illegal hot dog vendors operating in the city of San Diego. They shouldn't be there. They don't have permits. They don't even have one. [outdoor bug] screens. They don't even have hand washing facilities. They crossed those people to shut me down while those guys were working.”

“Traditionally, access to capital has been difficult, taking weeks to months to plan and execute the application process,” Tehrani highlighted the regulations. “What we have tried to do is to make that process easier and more flexible to allow the business owner to be able to have an opportunity and be able to achieve that. [operational funding] in hours or days.”

While the data suggests a bleak future for California's average businesses, Tehrani believes the survival of the US economy depends on the “problem solvers” currently being pressed in the Golden State. For him, the current problem is a forced return to the new roots of entrepreneurship.

“Small businesses are powerful. They are the strongest and perhaps the reason why the US economy is as strong as it is; it relies on small businesses to be successful. There is no place on Earth where this small business environment exists except in the United States,” said Tehrani. “Having said that, these challenges require business owners to go back to their roots. They're innovators. They're builders. They're adaptable, and they're problem solvers. And that's what it really takes to meet these challenges. And so there's $8 a gallon gas prices, [but] I bet it's the small businessmen who invent their own way out of those problems.”

For Georgopoulos, the top advice for struggling peers – “move to Texas” – is a joke that carries a heavy weight of truth. However, he chooses to double down on his situation, even if it means fighting against a system he says makes him “less fond of it.”

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“We didn't get into this business to get rich. It's not a get-rich business. You're in the restaurant and hospitality industry because you love what you do. You love to host people. You love to have people in your place of business and show them a good time. We're starting to love you a little bit. And eventually, you'll have all the cookie-cutter restaurants if we're not careful,” Georgopoulos warned.

But even with the “sticker shock” of his home solar bill and the layoff, he's not gone yet.

“California has given me everything. I've worked for it, it didn't come easy. So I still believe we can make it work. We just bought a new local company called Ballast Point that we have left here in San Diego. It would be very cheap for me to get it out of the way. We're going to get a lot of profit from that. Soon, things will change in our favor.

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