▶ 0:20:58They always get me.
▶ 0:21:01Just switch the chair.
▶ 0:21:05Or you can switch with mine.
▶ 0:21:07I can do really well. [laughter]
▶ 0:21:15You sure you don't want mine? Yeah.
▶ 0:21:16I got you.
▶ 0:21:17Thanks. Okay.
▶ 0:21:19Okay. We're gonna get started.
▶ 0:21:21Okay. Let's go.
▶ 0:21:22Corrected. It's um
▶ 0:21:24you you ready?
▶ 0:21:27Uh before we get started, uh I want to recognize Congressman Cisneros from the Grey State of California that will lead us in our prayer and our pledge. You please stand.
▶ 0:21:41We'll do the prayer first. Lord, thank you for gathering us here bringing us together. Please watch over our nation. Please watch over the people of the United States entire world as this winter storm crosses our country. Please keep everybody
▶ 0:22:19Aliance to the flag of the United States of America and to the republic for it stands one nation indivisible with liberty and justice for
▶ 0:22:42Good afternoon everyone. Uh I now call the committee on small business uh to order. Without objection, the chair is authorized to declare a recess of the committee at any time. I now recognize myself for my opening statement. I want to say welcome to to today's hearing local ownership national brands how franchising is a pathway to Today's hearing will be the committee's second hearing on the 119th Congress regarding the franchise business model.
▶ 0:23:08Our first hearing largely focused on the importance of extending President Trump's tax cuts and jobs act and on the impacts of burdensome regulations imposed by the Biden Harris administration such as the disastrous uh joint employer rule. Fortunately, the Congress delivered in a critical moment and President Trump signed the working families tax cuts, the largest tax cut in American history into [clears throat] law on July 4th of last year.
▶ 0:23:31Now, this legislation not only prevented a tax hike on America's small business, but also made the 20% 199A small business deduction permanent. That means Main Street will have more cash on hand to invest and grow their businesses. President Trump's tax bill also cuts tax on tips and overtime, helping small businesses retain employees and reward them for their hard work. Now, today, we expect to hear from franchises and franchisers about how President Trump's tax cuts will help their business and employees.
▶ 0:24:01We will highlight the continued importance of codifying a deregulatory agenda for small businesses, including a clear and reasonable definition of the joint employer standard. This clarity will give small business, including franchises that operate in every corner of America, the certainty they need to grow and succeed. There's an estimated 831,000 franchise business uh owners operating in this country.
▶ 0:24:24franchises employed nearly 9 million people or roughly 5 a.5% of US employment and contributed 550 billion dollars to the US GDP. My family has been part of the franchise model and still is in the car business for over 80 years. I've seen firsthand the benefits to consumers, manufacturers, and mostly important, our local communities. The franchise business model offers aspiring entrepreneurs access to resources and tools to assist with the many challenges of a business ownership.
▶ 0:24:55By lowering taxes, reducing regulations, and promoting access to capital, we can uh empower these entrepreneurs to thrive, invest in their employees, and continue building stronger communities across our nation. I want to thank our panel of witnesses for taking time today to come here and their small bring their small business story with them and to participate in this important hearing. We look forward to your testimony today. And with that, I want to yield to my distinguished ranking member and friend from New York, Miss Velasquez, for her opening remarks.
▶ 0:25:25Thank you, Mr. Chairman. Good afternoon, everyone. Franchising is an important aspect of the small business economy, supporting an estimated 9 million jobs and contributing nearly 1 trillion dollars to annual economic output across key sectors, including restaurants, hospitality, and personal services.
▶ 0:25:47Franchises offer entrepreneurs the opportunity to participate in an established brand and proven business model for families, immigrants, and firsttime business owners. Franchising can provide a meaningful pathway to entrepreneurship, high earning careers, and financial independence while creating jobs and opportunities for local communities. At its best, franchising is a mutually beneficial agreement.
▶ 0:26:16Franchises gain access to branding system and national marketing while franchiseors expand their footprint and share the success of local operators. In many cases, this structure can lower the barrier to entry for entrepreneurs. Unfortunately, that is not always how this system functions.
▶ 0:26:39In exchange for the franchiseor's brand and services, small business owners can give up a significant amount of freedom to maintain certain brand standards. Franchiseurs can place restrictions on small business owners, limiting their ability to set prices, source inputs, or respond to local market conditions in ways that improve profitability.
▶ 0:27:07While a disclosure process exists, some have contained incomplete or misleading financial information. But more complete disclosures could deter small business owners and lenders from making such large capital investment, including with loans backed by the Small Business Administration.
▶ 0:27:29In fact, the FTC found that franchise and non-franchise loans defaulted at similar rates, but defaults associated with some brands were as high as 20%, indicating issues with the business model. The brands noted in that brief for their high default rates remain on the franchise directory today.
▶ 0:27:54As we discuss the benefits of franchising, it is important to recognize the real risk and seek ways to strengthen the process and protect small business owners. No matter the model, nobody is being spared from the economy being created by the president and congressional Republicans.
▶ 0:28:17Over the past few years, small business over the past year, small business growth has stagnated and hiring has basically ground to a halt. Since the president unveiled his liberation day tariffs, the growth plan for of many small firm has been crushed as they face higher prices on their inputs and more uncertainty about the business environment.
▶ 0:28:44Nervous about the impact of tariffs on prices, the Federal Reserve paused interest rate cuts, delaying access to affordable capital for small business owner. Now, the president is threatening criminal charges against the Federal Reserve chairman because he refuses to cut rates based on anything other than data.
▶ 0:29:08As my Republican colleagues do a victory lap on their egregious tax cut for the rich, small business owners are seeing their health care cost skyrocket, some by much more than any benefit they receive from the path through deduction.
▶ 0:29:27I hope this hearing sheds more light on steps we can take to protect small business owners engaged in the franchising ecosystem and the issues emerging from the observed and chaotic chaotic economic policies of the president. I yield back.
▶ 0:29:47Gentle lady yields back and we will now move to witnesses introductions. Our first witness today is Miss Angie Katenavas. Uh she is the owner and founder of Lunatic Fringe in Salt Lake City, Utah. She has co-founded Lunatic Fringe, a hair salon business in 1999, growing the company into a multi-loation operation that includes salons, a beauty school, and a beauty supply store.
▶ 0:30:10Uh, in 2010, Miss Council Navis had received the North American Hair Styling Awards MBAA award and Lunatic Fringe later earned NAHA Salon Team of the year award in recognition of his leadership and business performance. So, thank you for being here today and we appreciate your Our next witness is Miss Tina Patel. Miss Patel is the co-principal and chief financial officer of Promise Hotels in Tulsa, Oklahoma.
▶ 0:30:37In her role, Miss Patel oversees the company's financial and accounting operations while providing strategic and operational leadership to strength performance strengthen performance. Miss Patel previously served as ambassador for the Central Midwest region of the Asian-American Hotel Owners Association as a member of the board of directors of the Federal Reserve Bank of Kansas City. Miss Patel graduate of the University of Missouri Kansas City. That covers both sides, doesn't it? Uh where she earned a bachelor's of science in biology.
▶ 0:31:07I'm looking forward to your testimony and thank you for being here. Our next witness today is Mr. Clement Troutman. Uh Mr. Troutman is a franchise owner who operates the Troutman Management LLC in Capitol Heights, Maryland. Mr. Troutman began his career in the United States Navy before transitioning to defense contracting and cyber security consulting. He he uh Mr. Troutman, thank you for your service country, too, by the way. We appreciate that. And in 2017, Mr.
▶ 0:31:33Troutman opened his first tropical smoothie cafe with no prior food experience and has since built a high-erforming operation through a strong focus on leadership, service, and execution. Mr. Troutman is actively expanding his business with two additional locations in development and remains committed to community engagement through job creation and local charitable events. I'm looking forward to hearing your testimony, too, Mr. Troutman.
▶ 0:31:56I now recognize Representative Macyver uh from the great state of New Jersey uh to briefly introduce her constituent and the last witness appearing before us today. Thank you, Chairman and Ranking member for convening this hearing today. I am pleased to introduce our witness, Rico Macarg, executive officer of Strive Well, to the committee today.
▶ 0:32:18Rico is a franchise small business owner and operator who runs wellness and fitness businesses across the region including Sweat House in Gardwood, New Jersey, located in my amazing 10th congressional district. I had the pleasure of visiting this Sweat House location personally and meeting the hardworking staff there. Franchise businesses like Sweat House play a crucial crucial role in stimulating the growth growing economy in my district, employing families and increasing GDP.
▶ 0:32:49As CEO of Strive, Rico manages physical locations, employs teams, meets payroll, connects with customers, and navigates regulatory requirements. all while responding to rising labor costs, inflation, real real estate pressures, and changing consumer behavior. His perspective comes directly from operating businesses on the ground, not from theory.
▶ 0:33:15In addition to his role as an operator, Rico brings experience as an investor and employer who understands how policy translates into real outcomes for workers and communities. decisions made in Congress affect whether small franchise franchise owners can hire, expand, offer benefits, and keep their doors open. His testimony reflects the practical consequences of those decisions at the local level.
▶ 0:33:43Prior to f prior to founding Strive, Rico held senior leadership roles across retail, healthc care, education, and technology. He is also a US Navy Thank you for your service. And he completed multiple deployments and earned three Navy and Marine Corpse com accommodations accommodation medals.
▶ 0:34:08Rico brings a practical operator focused perspective on what franchise small businesses need to remain viable, support their workers, and continue serving their communities. I appreciate his will willingness to testify before the committee and look forward to his insight especially right before snowstorm.
▶ 0:34:27Welcome Rico Lady yields back and I want to thank all of you again for being here and before we've got a few rules here very few rules but uh before recognizing all of you I would like to remind you that your oral testimony is restricted to five minutes in length. If you see the light turn on red in front of you it means your five minutes has concluded and you should wrap it up with your testimony. If you keep talking, you will hear this and it'll get louder and then we're gonna have to ask you to stop. Okay?
▶ 0:34:56But I know you all will do it right on time. So, I want to thank all of you again. I now recognize Miss Ken Avis for her fiveminute opening remarks.
▶ 0:35:10Mr. Chairman, Ranking Member Velasquez, and distinguished members of the committee. Thank you for having me for the invitation to be here today with my fellow franchise business friends. My name is Angie Katsanavis. I am here with my husband Shawn and my daughter Electra. Some of you may know me as Angie K from the Real Housewives of Salt Lake City. But long before I was on television, I was a hairdresser and I went on to start a hair salon and business with my husband Shawn called Lunatic Fringe.
▶ 0:35:39Before I knew it, we had an opportunity to grow our business and provide the same opportunity for other stylists to own their own business. We grew our business using the franchise model. So, while the word while the world may know me as Angie K, I am first a small business owner and more than even a small business owner, I'm a franchise brand founder. I'm passionate about franchising.
▶ 0:36:03And you may have seen that passion come through on camera a few months ago when a fellow housewife who partners with a fast food brand questioned whether I was a real business owner because I franchise. In that moment, I responded with, "You do French fries, I do franchise." And the clip blew up online. But what struck me about that moment in the comments on social media, they weren't just about the usual response to drama.
▶ 0:36:32They were overwhelmingly in support of my business and supportive of the franchise model. Because when I told my co-star on the show, I do franchise, it meant I didn't open my own business. I opened a franchise business that allowed that allowed other entrepreneurs to also thrive in the system that we started. And so I'm here today in partnership with the International Franchise Association to share what to share what franchising has meant to me, my family, and the people that I have had the privilege of working alongside.
▶ 0:37:03Mr. Chairman, we started with we started out with humble beginnings. I am the daughter of a Greek immigrant. My father came to this country with nothing but the clothes on his back. He taught me that if I wanted something, I had to work for it. And he taught me that there's dignity in every job. And that's taking care of your people. That is what business is really about. That's the philosophy we brought to Lunatic Fringe. We had a vision to create a salon where stylists could grow their careers.
▶ 0:37:31We sought to build business and a culture where someone could walk in as an assistant or a hairdresser, and if they worked hard and learned the craft, they could eventually own their own business. Let me tell you about Katie Torres. Katie lived in Salt Lake City, Utah, and she's an incredible hair stylist over 25 years in the industry industry. Katie trains stylists across the country, and she knows the craft inside and out. Katie joined our team in 2017. She learned our systems, our culture, and how we do things.
▶ 0:38:01And last year, she and her husband, Rupen, opened a salon of their own in Lunatic Fringe location in Draper, Utah. Katie is a franchisee now. She owns her own business. She employs local stylists and serves her community. And it's only possible because of franchising.
▶ 0:38:18Because Shawn and I learned the hard lessons, reduced the risks, and took the hits, now Katie and our future franchises are able to open businesses with proven systems with the support and infrastructure that Lunatic Fringe is proud to provide. From that first 700 square foot space, my husband and I have now built a network of salons across Utah, Idaho, and Ohio.
▶ 0:38:41We own and operate three salons, and we have franchised six salons to local entrepreneurs who run them as their own Look, I know some people hear the word franchise and they think of a big corporation, but it's not true. Franchises are small businesses. My business is a small business and it's the franchise model that has allowed me to grow my small business and that is why I'm here today to tell you about how much the franchise model has meant to so many moving forward.
▶ 0:39:11When you hear franchise, I hope you think about our franchises, about Katie, who spent decades perfecting her craft and through franchising came to her own business and now she is passing along that success to others. That's what the franchise model does. It lets people who wouldn't otherwise start a business from scratch become entrepreneurs in their own communities. It lets people achieve the American dream of business ownership. And those American dreams are worth protecting.
▶ 0:39:41This committee has the rare opportunity to protect my business and the businesses of fellow witnesses. Today, Congress can pass a bipartisan American franchise act to protect the franchise business model for the next generation of new entrepreneurs. This is perhaps the most important thing Congress can drew can do for 830,000 franchise businesses in the United States and their 9 million employees that are the fabric of neighborhoods across America. Mr.
▶ 0:40:10Chairman, I'm proud to be here today. Proud to represent this business model and proud to work alongside organizations like IFA that fight every day for the small business owners who make franchising what it is. Thank you again for the invitation. It really is the honor of a lifetime to be here with you all today.
▶ 0:40:28Thank you very much. I now recognize Miss Patel for her five-minute opening
▶ 0:40:34Good afternoon, chairman and ranking member and distinguished members of the committee. Thank you for your invitation to testify today on the importance of the franchise business model and the entrepreneurial opportunity opportunities it creates for small business owners in America. This is especially timely as you consider policies that will impact small business owners who fuel this nation's economy. My name is Tina Patel.
▶ 0:40:57I'm the co-principal and chief financial officer of Promise Hotels, a hotel development and management company based in Tulsa, Oklahoma. I'm honored to be here on behalf of the American Hotel and Lodging Association, the national voice of the lodging industry. AHNLA represents thousands of hotel owners, franchises, iconic global brands, property managers, and all parts of the hotel ecosystem.
▶ 0:41:24I am a proud first generation American small business owner and hotel year from Eastern Oklahoma. We own and operate seven hotels representing 713 guest rooms and employing more than 165 associates. Throughout the decades, we have been franchises of several leading hotel companies and operated properties under nationally trusted brands including Best Western, Choice Hotels, IHG, Hyatt, Hilton, and Windham.
▶ 0:41:52In 1979, my family and I immigrated to the United States from England seeking better opportunities. We found the American dream in Sidellia, Missouri. For 15 years, the small roadside motel my parents owned was our business. And as a family, we did every job. We were the front desk clerks, the housekeepers, maintenance, and accountants. We did everything we needed to do to make our business work.
▶ 0:42:18In 1997, my husband Pete and I began our life together by operating a 54 room Best Western Hotel in Sand Springs, Oklahoma. This partnership with a national trusted brand gave us the confidence to launch our first adventure. We lived inside this hotel and operated it 24 hours a day, 7 days a week.
▶ 0:42:39We determined that hotel franchising provided the most viable path for long-term success, allowing us to build a future for our two sons, Jaden and Talon. For thousands of hotel years and millions of other entrepreneurs like me, franchising is the most accessible pathway to building a business.
▶ 0:42:57In the lodging sector alone, franchise hotels support more than 2.8 million jobs, account for nearly 60% of all US hotels, and generate nearly a hundred billion in economic impact The franchise model has provided the foundation to expand our business across different brands, support hundreds of careers, and reinvest into our communities. A predictable and progrowth federal tax environment is a central pillar of economic stability for the hotel and lodging sector.
▶ 0:43:27I want to thank you for passing the working families tax cuts act last year. This legislation prevented a massive ti tax tax hike on small businesses like mine. A [clears throat] key provision for my company was the reauthorized opportunity zone program, which allowed us to develop a hotel in Tulsa's historic Greenwood district that now employs over 30 staff members. On behalf of America's lodging industry, I recommend three key actions Congress can take to support small business.
▶ 0:43:56First, pass the bipartisan American franchise Act, which was which was introduced by my hometown Congressman, Kevin Hearn. Franchises like me need a permanent common sense joint employer definition. For decades, this rule has shifted with each administration, creating significant risks and uncertainty. I want to ask you to pass the American Franchise Act so owners can focus on running their business operations with confidence no matter which administration is in office.
▶ 0:44:25Second, increase access to capital. I have seen first firsthand how critical SBA financing is to starting a business. Today, capital has been increasingly expensive, stifling new development and reinvestment. I call on Congress to raise the 7A and 504 SBA loan limits. This will enable more entrepreneurs to grow their businesses, support job creation, and drive tourism and economic activity in the communities we are live in.
▶ 0:44:54Finally, continue to incentivize entrepreneurship as outlined in the working families tax cut act. We must ensure more Americans can create small businesses, employ our neighbors, and create jobs in our communities to keep them thriving. Chairman, ranking member, and members of the committee, thank you for your leadership and the opportunity to share my story.
▶ 0:45:13I am proud to represent the hotel owners who share this American dream, and I look forward to working with you to expand entrepreneurship, strengthen access to capital, and support the continued growth of small businesses nationwide. Thank you. I now recognize Mr. Troutman for his fiveminute opening remarks.
▶ 0:45:35Thank you, Chairman Williams, Ranking Member Valisquez, and distinguished members of the committee. Thank you for asking me to appear today. It is so good to meet you all of you, including my fellow witnesses. My name is Clement Troutman and I am a franchise owner along with my my wife Jackie who's here with me today of two tropical smoothie cafe locations in Capitol Heights and Buoie Maryland. Later this year I am also opening a PJ's coffee of New Orleans um [snorts] locations.
▶ 0:46:06So we are a growing bland business. I am a true franchise m business owner. I am here today on behalf of the International Franchise Association and next month I am pleased to be joining IFA's board of I stand before you today as a man defined by service. But my journey began long before I dawned a uniform or opened a storefront. I come from humble beginnings rooted in the belief that hard work is the only currency that never devalues.
▶ 0:46:36My story includes service in the United States Navy for 23 years where I learned that leadership isn't about rank. It's about the person standing to your left and to the right. Today, I am deeply humbled to be here. To go from the deck of a ship to testifying before the leaders of our nation is a testament to the American dream, a dream I now live every day as a small business owner. Just as my life has been about service and small business, I am grateful to each member of this committee for your service and for your support of small business.
▶ 0:47:07After my naval career and years as a defense contractor supporting our war fighters, I thought I had fulfilled my mission. But in 2015, a simple research project by my daughter Jocelyn, then a student at Howard University reignited a fire in me and I didn't know was still born burning. I remember that first game changer lunch at a tropical smoothie cafe as a baby as a baby boomer. The smoothie industry was a new industry to me.
▶ 0:47:33However, shortly thereafter, I was returning from a meeting and was asked by a colleague as to whether I had ever been to a tropical smoothie cafe. My answer was no. I wasn't familiar with it yet. We stopped. It wasn't just about the food. I saw the spirit of the enterprise and team I desperately wanted to lead. Despite having zero background in food service, my wife Jack and I took a leap of faith. We didn't just open a business, we opened a family legacy. Franchising isn't a model for big corporations.
▶ 0:48:02It's a model for veterans like me and people like Angie, Tina, and Rico. Especially for veterans like me. Franchising is a mission. My first hire at my Tropical Smith Cafe was my daughter after she graduated from Harvard University. Today, we are a nine-year family business. We have employ nearly 80 people across two locations in Maryland. These aren't just staff. We are a team and they are tomorrow's leaders.
▶ 0:48:27As a as a local franchise owner, I have had the unique opportunity to partner with Mission of Love Charities as well, which I sit on the board of directors of to provide services like food and support items to the community of Capitol Heights and the surrounding area. It's no surprise that veterans possess a leadership toolkit, emotional intelligence and resilience forced in the heat of service. We don't just want to make a profit. We want to make a difference. I am here to ask you to protect this engine of upward mobility.
▶ 0:48:56And I'm grateful for the tax law that provides critical tax for funds to that allow small business to have enough capital to invest in our employees and to grow like a new PJ's coffee location so familyrun business like mine can create more possibilities for our people. Where I grateful for the certainty on taxes now franchise small businesses are asking for a business model certainty as well. My message you to you is this.
▶ 0:49:24Thank you for the the for highlighting the contributions of the franchise community today and will you please pass the bipartisan American franchise act to protect the franchise business model for the next generation small business owners. Thank you Mr. Chairman and all the members of the committee committee who already co-sponsored the AFA including our very own from Maryland Congressman Johnny Yo.
▶ 0:49:48I hope all members of the House Small Business Committee can support franchises, small businesses, and co-sponsor the AFA. It is perhaps the best chance for by for a bipartisan win for small businesses this year. Mr. Chairman, thank you for allowing a veteran from Humble Roots to share his story. Franchising gave me a second chance to serve, to lead, and to build something that will outlast me.
▶ 0:50:13Please help us protect that dream for the millions of Americans who wake up every day ready to work for it. I look forward to your questions. I now recognize Mr. Merig for his five-minute opening Chairman Williams, Ranking Member Velasquez, and distinguished members of the committee, including New Jersey's own Congresswoman Macyver. Thank you for the opportunity to testify before you today.
▶ 0:50:44My name is Rico McCreary. I'm a veteran, a franchise owner, and a small business operator with the distinguished pleasure of operating Strive, both Sweat House and Strong Pilates franchise brands. I'm here to speak to you about how franchising can be a powerful pathway to entrepreneurship and how the systems surrounding it are creating unnecessary barriers. I believe context matters. We all have origin stories and mine help explains why this work matters so deeply to me.
▶ 0:51:13Not dissimilar to my fellow panel members. I grew up poor. My mother was a superwoman single mother raising three rambunctious boys working three jobs just to make ends meet. My [clears throat] father was an immigrant from the Philippines who later became an American citizen and worked at our local shipyard for the Department of the Navy for 30 honorable years. There was no generational wealth. There was no safety net. Only hard work and resilience.
▶ 0:51:41I served honorably in the United States Navy for eight years from 2003 until 2011 with deployments across the Middle East, South America, Africa, and Europe. When I left, I transitioned directly into the workforce with no clear plan, just grit and strong military work ethic. At the same time, I studied nights and weekends full-time, earning my bachelor's degree from the university, excuse me, from National University, and going on to earn my MBA from Georgetown University's Mcdana School of Business.
▶ 0:52:12I've had the honor of holding senior corporate leadership roles at Lamborghini North America and Lorden Taylor. By many measures, I had a very successful corporate career. My co-founder and husband Steven also chose a path of service. He served our nation as a Peacecore volunteer in Morocco for nearly three years, working directly with local local communities and women to help build small businesses from the products they created. Service to our country and others has always been part of our DNA.
▶ 0:52:43Together, we wanted to build an organization that would create jobs, support healthier lives, and ultimately provide the foundation for a lasting family legacy. And that's why we chose franchising. Franchising often presents a structured and supported entry into entrepreneurship, particularly for veterans and mission found missiondriven founders, one that allows local owners like myself and others here to succeed with the backing of national brands. And in many ways, it works.
▶ 0:53:11But what is often overlooked is how shifts in the macroeconomic environments and policy decisions that are happening today impact us as as local franchises and business owners. First, tariffs. Tariffs matter because they directly affect the cost of building and equipping our businesses long before a single dollar of revenue is ever earned. Most fixture and furniture come from overseas.
▶ 0:53:38As a result, I personally have seen a cost and increase of 25 to 50% in the cost of our equipment in the last 6 months. Our most recent project, I received a $30,000 tariff bill 3 months after our studio had opened. That cost was never forecasted and could have never been planned or anticipated for. For a newly opened small business, that kind of surprise immediately drains our working capital and it forces us to charge prices higher to the consumer.
▶ 0:54:09Second, economic instability and inflation. For small business owners, predictability is essential. We when costs change rapidly, it becomes extremely difficult to budget, hire, and grow responsibly. Earlier this year, we opened our second location and within six months of the other one that we had previously opened, our cost had increased 25% just for the cost of material.
▶ 0:54:37Those increases reduce our capital available for staffing, training, marketing, and employee benefits. We as local business owners end up absorbing these costs. The franchise disclosure document for firsttime entrepreneurs. The FDD is often treated as a trusted and reliable source of information, but in reality, it's not meaningfully regulated.
▶ 0:55:02Franchisors get to choose what financial data and how they decide to present information in the financial disclosure document. When we purchased our first franchise in 2024, we were shown financial data that did not reflect subsequent material changes to design, operations, or cost. While those costs important, we were not able to forecast those changes. Veteran access to capital. Veterans are encouraged to become entrepreneurs.
▶ 0:55:29Yet, there's no meaningful capital product through the VA to support this The VA offers education and housing benefits, but they do not offer products that help us fund these businesses. Starting a business has been our dream, but economic instability, rising cost, and lack of transparency, and the lack of capital have made that journey harder for us than ever possible.
▶ 0:55:55Franchising can be a pathway to entrepreneurship, but only if policy keeps pace with the realities faced by local owners. This is not a partisan issue. It is about preserving our entrepreneurial spirit.
▶ 0:56:05Gentleman's time is up
▶ 0:56:07and thank you so much, and I look forward to your questions. Appreciate
▶ 0:56:10We will now move to the member questions under the five-minute rule that we talked about. I now recognize myself for five minutes. Mr. Troutman, uh before you opened your first tropical smoothie, you had an entirely different career in the Navy, as you've talked about, and we've thanked you for that, and later as a cyber security defense contractor, uh I recently learned that veterans account for about 14% of all franchise owners today. So could you share with us some lessons from your military experience that have helped shape your approach to running a successful uh franchise?
▶ 0:56:44Mr. Chairman. Wow. Yes. So transitioning from um you know from um from the Navy through um contracting into franchising was a um skills we learned in the military, you know, were directly relatable to um being in a franchise business.
▶ 0:57:11you know, standard operating procedures which are common for, of course, in in the military, you know, having structured approaches to to doing things and and getting things done, training, you know, uh organizational formats aligned directly with franchising, if you will. You know, it allowed us to um to have a blueprint, if you will, on how to do it.
▶ 0:57:34You know, I had no experience in in obviously in tropical smoothie or food, but here was there was a template and even when I did the um the the u application, I I said no to all the things they asked me as far as food service, but um I did check that I could serve and I can follow orders and we can follow guidelines and templates and systems, you know, and that's what we
▶ 0:57:59Well, let me ask you this. What what aspects of the franchise business model make it particularly well suited for veterans to succeed? You've touched a little bit on that. So,
▶ 0:58:09what aspect of the franchise one more
▶ 0:58:11what uh what aspects of the franchise business model make it particularly well suited for veterans like yourself to
▶ 0:58:20You what aspects of it? Building building teams.
▶ 0:58:25You know, building building teams and and empowering others. You know, those are the aspects of the business that
▶ 0:58:31uh Miss Patel, uh I'm a current sponsor of the Bipartisan American Franchise Act, uh led by Congressman Hearn, which we've talked about in your district. This bill would provide permanent clarity to the joint employer standard for franchisers and franchises alike. What would a clear, predictable, and permanent joint employer standard mean, not only for your business, uh but for the franchise model as a whole?
▶ 0:58:56Thank you, Mr. Chairman. Um, it would provide us clarity and certainty. As a small business owner, I need to have certainty for my long-term planning for my business, my staff, and my customers. And um, the back and forth in each administration on this rule makes it hard for a small business owner like me to project and plan for the future and long-term planning. So, we need to codify this rule.
▶ 0:59:25Davis, can you tell us how important franchising is to the community's small business that you serve?
▶ 0:59:32Yes. Uh Sean and myself have been able to provide opportunity and employ people in our community. Also growing people within our teams that have been loyal to us and had the skill set to become an a salon owner. And we were able to provide them the blueprint to do that and they could stay within our family and uh you know grow within the company.
▶ 0:59:56Uh you know we were able to set them up for success by passing along our years of uh discoveries you know failures. Uh we we took all the hits to to get to where we needed to be today to offer them you know a salon that was set up for success. So, but we we employ several people um in Salt Lake City and also outside of our network in Ohio and Boisee and we are growing organically and continuing to add people to our
▶ 1:00:25Okay. Thank you for that. And now recognize the ranking member for five minutes of questions.
▶ 1:00:30Thank you, Mr. Chairman. Uh Mr. McCare, over the past year, the president has instituted broad tariffs on every other country. sometimes fluctuating from day to day. How has the con constant uncertainty of these tariffs affect your ability to navigate the business environment and how has it impacted your
▶ 1:01:00Thank you for the question. Um, you know, as Miss Patel said in my other panelists, we rely on certainty
▶ 1:01:07in our business. And um, more specifically, during one of our projects, the uh, administration was going through the variety of trade and tariff um, ups and downs as we call them and it provided a lot of uncertainty about the cost that it was going to impact us in opening our studios. Um, as I mentioned in my um, statement, we did end up getting a $30,000 tariff bill 3 months after opening that I could have not planned for.
▶ 1:01:37And um, ultimately that uh, takes working capital and that's capital that we had planned for maybe growing a new location to hire 20 more people or bringing health care to our employees for that quarter. So um, it makes it hard because we do need certainty. We need stability.
▶ 1:01:54Thank you. Uh, Miss Patel, hotel owners often rely on importing for much of the furniture they use in hotels. How would recently proposed section 232 tariffs on upholster furniture, kitchen cabinets, and vanities impact uh, hotel
▶ 1:02:15Thank you, ranking member, for that question. Um, I can only speak to my business and from my experience with my hotels in uh, Oklahoma. Our industry hasn't actually fully recovered from the p pande pandemic levels and costs have been rising over the past five years and revenues have not uh kept in pace and so we continue to see shr shrinking margins but um so we've seen it happen all since five years back. Thank you.
▶ 1:02:43Thank you. Um Mr. Am I correct? Last year, my Republican colleagues passed a large tax cut for businesses while refusing to extend tax credits for health insurance. Has their refusal to extend these credits impacted your business or employees?
▶ 1:03:04Thank you for the question. Um, yes, it has. And, um, this is as simple as the difference between a P&L and cash flow. P&L offers you a look at the business um from a holistic view and a tax credit while as beautiful it is, if we don't make it to the end of the year to enjoy that tax credit benefit, then we don't have a business to operate.
▶ 1:03:26And so when um when the government, whether it's local, state, or federal provides these subsidies to us that allow us to offer health care or allows our employees to have affordable health care. Um you know, they enjoy those benefits and we can make it to the end of the year.
▶ 1:03:42And how will that affect um the skyrocketing cost for example of health insurance uh has impacted your ability to recruit uh and retain high quality staff?
▶ 1:03:57Yeah, it it does make it challenging. Um we are currently uh still in early stages of our organization. We've opened three locations in 9 months and we are currently opening two more in the next 6 months. So, we're growing very fast, but it makes it very challenging for us to offer healthcare because we can't afford healthcare as a small business to offer to our employees.
▶ 1:04:16Um, we did offer a stipend to our leadership and to employees that um as part of their benefits package and unfortunately as of January, those colleagues that we offered the stipen to came to us and said the stipen they are offering today isn't making a meaningful impact and I actually can't afford the healthcare. And so we have had employees that have come to us since January and have said they are no longer on a health care plan and the siphon that we are un that we can afford um doesn't make an impact for
▶ 1:04:46And now I would like to uh ask you a question related to FTC uh regulating pre-sale disclosure of franchise related documents to potential franchises. How could the franchise disclosure document be improved to level the playing field for entrepreneurs?
▶ 1:05:08Yeah, great great question. The franchise disclosure document um is an important document, but it's very complicated. As a military veteran uh E5 coming out of the military with no college legal background and I'm handed a 100page document and said to understand and interpret it, um it's very difficult. There's no legal ease. It's all full of legal ease. Excuse me. And it's not consistent across the
▶ 1:05:33Thank you, Mr. Chairman. I yield back.
▶ 1:05:36Gentle lady yields back. I now recognize Mr. Muer from the great state of Pennsylvania for five minutes.
▶ 1:05:41Well, thank you, Mr. Chairman. Thank you very much to all of our witnesses. Thanks for making the trip in. We hope [clears throat] you get we get you out of here before the the snow hits. Uh and congratulations. It's really a pleasure to hear your stories and [clears throat] your successes. uh and so uh it's wonderful to have you here and we want to uh learn as much as we can and learn also how to help you uh from a federal uh standpoint as much as possible.
▶ 1:06:06So of course we passed the um big beautiful bill as as it was known as well as the uh uh tax cuts for working families.
▶ 1:06:18And in it was several uh tax uh re relief measures for small businesses. Of course, the 199A, bonus appreciation, R&D tax credit. Some will say it's as much as 30% tax increase would have occurred uh were it not for the Republicans voting this long-term and permanent tax reduction into uh into effect. So, um would you mind uh it's okay I call you Miss Angie K. Okay.
▶ 1:06:48Thanks. You said all of America does. So I want to be part of all America.
▶ 1:06:53Yeah. Great. Can you tell us a little bit? Tell us how the uh federal taxes the um any anything else you want to speak about the regulations uh that we're minimizing health care certainly came up. We're all working on that. We really didn't want to double down on what what I consider to be a failed system because over the last four years your healthcare prices were going up. We don't just want to say, "Hey, let's extend that because it's working wonderfully." Because it's not. So, we're trying to set up a more improved program.
▶ 1:07:21Uh, but that as well as um anything else you might want to say that you think if you were sitting in our seat, you would be working on for small businesses and franchises.
▶ 1:07:34I uh
▶ 1:07:36Excuse me. There we go. Thank you for the question, Congressman. Uh, we're appreciative of the bonuses, depreciation provisions. In the salon business, we require special equipment. A perfect example for us is our high-end ventilation systems, salon seating. Under 100% bonus depreciation, a franchise can modernize the entire space. We with 12 stations a year. Without them, they may only be able to replace three stations at a time over four years.
▶ 1:08:04This immediate write-off has allowed several of our owners to upgrade their space and salons years ahead of schedule, which improves the client experience as and grows their revenue immediately. Uh it's been great for us to be able to reinvest uh you know in the space in technology in equipment and take that money and reinvest it back in hiring new employees and uh reinvesting it in our existing team members to offer
▶ 1:08:32Good. Well, you sound enthused and you sound optimistic. You're looking forward to a strong 2026.
▶ 1:08:37Yes, we are ready. We're doing great. And this is just uh continued support. So, thank you.
▶ 1:08:41That's great. And also, while I while I'm have you, the American Franchise Act, [clears throat] I of course am a uh uh co-sponsor for uh how will this piece of legislation support your franchise? Uh well, just continued uh you know, no tax on tips has been a big part of our stylist take-home pay, more money in their pockets to support them and all their hard work and you know, again, just uh it's a continued health of the
▶ 1:09:08That's great. Your employees appreciate the no tax on tips. That's really really nice to hear. Thanks. Uh Miss Patel, uh [snorts] somewhat same questions. Why don't you just offer us what uh what's working for you, what isn't, uh and maybe uh speak on the American Franchise Act, which uh I think we're all supporters of and and we want to see get get passed through on the House floor and and have the president sign. So, why don't you go ahead?
▶ 1:09:30Thank you, Congressman. Um from the Working Families Tax Cut Act, it was beneficial for our business. you know, we we have a unique model in the franchise system where we actually own the real estate, we own the building. And so, when we're able to deduct and bring more capital into or leave more capital into our business, we can reinvest it back into our properties. I'm sure everyone loves a fresh, clean, updated hotel room with a flat screen TV and great Wi-Fi.
▶ 1:09:57Um, it helps us um reinvest into our employees with training and things like that. Um, one specific thing that really I was a our company was able to take advantage of um, not advantage but was you able to use the opportunity zone um, program wreath authorization.
▶ 1:10:15We were able to build one of our hotels in an underserved community of the Greenwood district in Tulsa, a historic district, and we're able to build a uh, $16 million hotel uh, with 116 rooms that provided 30 jobs and um, is still doing great. um continues to serve that company and we helped revitalize that um uh that area. So, I'm really proud of that one.
▶ 1:10:38Again, on the American Franchise Act, um it gives clarity like we've all said here, as a franchise owner, our biggest risk is the unknown and we uh we have plenty to do as small business owners that
▶ 1:10:50Mattel, I'm I'm out of time. When I come and visit Representative Hearn, I'm going to stay in one of your hotels.
▶ 1:10:55Yes, please.
▶ 1:10:55See you then. And Mr. Troutman and Macro, five minutes goes fast. My apologies I didn't get to you, but thanks for being here. I yield back, Mr.
▶ 1:11:03Jim yields back. I now recognize Mr. McGarvey from the great state of Kentucky for 5 minutes.
▶ 1:11:07Thank you, Mr. Chairman. Appreciate you all for being here today. And of course, I saw that we were going to be talking about franchises. And as a Kuckian, when you hear something about franchises, you immediately think of the Colonel. Uh, you know, Colonel Colonel Sanders not just from Kentucky. He's he's actually buried in a beautiful cemetery about 10 minutes down the road from where I live in Louisville, Kentucky.
▶ 1:11:30And of course, you think about the Colonel because you think what's possible that somebody from Kentucky can start something that then goes across the entire world. Uh KFC is iconic. 30,000 restaurants worldwide, more than 150 countries and territories have a KFC in them. In fact, people used to ask me like, you know, when I first got elected, they said, "So, have you learned anything cool since you've been elected?" I said, "Oh yeah, if you're a congressman from Kentucky, they tell you the 11 original herbs and spices. That is not true.
▶ 1:11:59Uh, those are under locking key." But you know what? People know what the 11 original herbs and spices are. They they use them in Bangladesh and Brazil and so many other places. KFC is eaten by Japanese families on Christmas Day. And of course, it's so important for us in Louisville. And so we're talking about this and we're talking about rules and regulations which which no doubt are important. But I want to zoom out for a second too because franchising and the franchise model is so important in places like Louisville, Kentucky.
▶ 1:12:30I worry about the environment that the president and this administration are creating right now for our small business owners. Whenever I'm around talking to small business owners, the number one complaint I hear about right now is tariffs. And so we can talk about some of these rules and regulations, but when we're talking about the macro environment that is really hurting small businesses, the way this president uses tariffs, the way he threatens our military against our most loyal allies, when we have franchises that are expanding across the world, um, you know, even Canadians, we're seeing uh how they've stopped drinking bourbon.
▶ 1:12:59When is fried chicken going to be next in some of these countries? And that may sound a little ridiculous, but I don't think it's far-fetched. If you watched his performance in Davos yesterday, you know he's lost the plot. So this is tough. Uh everything from uh you know higher costs in uniforms, ingredients, packaging, equipment, our small business owners, our franchises who are already operating on the thinnest of margins.
▶ 1:13:25Um everything's getting more expensive and now consumers are seeing those expenses too and everything from healthcare to utilities to rent and it is impacting our businesses. So Mr. Troutman, I'll start with you. Earlier this year, the CEO um of your company of Tropical Smoothie Cafe issued a statement on the tariffs. You must have had some exposure to these tariffs because they are being placed on things like coffee, tea, and tropical fruits, other products that we cannot produce here in the United States, but they're impacting our businesses.
▶ 1:13:53Can you tell us a little about how tariffs have impacted your business right now?
▶ 1:14:02Okay. Yes. I I think we're we're we're um thank you for that um Congressman. Um we are seeing increases in pricing, you know, that is occurring. Um but um um but we're we're we're doing what we need to do in in this environment. [snorts]
▶ 1:14:18And are are those prices that you're seeing increased on your ingredients or supplies? Are they how are you absorbing those or are they just are you having to pass them along to the customers?
▶ 1:14:26Some some we absorb, some we pass. I mean we we we do our best to keep things um affordable for the customer obviously um you know to to absorb some of that if we can where we can
▶ 1:14:38but it's tough because you operate on thin margins and you know again uh Mr. Macreg said this, you know, we're talking about if we make it to the end of the year. I mean, this is a very tough environment and is created by policies coming out of this administration. I think quite frankly are are going into effect without any thought or strategy or certainly input from the businesses and the customers that they impact. Uh Mr. McGreg, I'll go with you. When we talk about a franchise agreement and you sign it, it explains restrictions that franchiseors may place on franchises.
▶ 1:15:07example, where what you must buy, where you must buy it, what you can sell, and where and how you sell it. Can you explain how this lack of flexibility leaves a small franchise owner hit harder by tariffs, especially tariffs that are implemented as haphazardly as these are?
▶ 1:15:22Yes. So, we enjoy the framework of a franchise. That's why we buy in the business. It's a business in a box. But when a franchiseor requires us to buy certain equipment that is only manufactured out of the continental United States, um we are held at the whim of those tariffs and the dollars that are coming attached to those items. Um you know, and we we work in collaboration with franchisors to come up with alternate product sourcing hopefully made in the United States of America.
▶ 1:15:50But um it's a domino effect with the health care situation the way that it is and our economy the way that it is. they can't afford to pay earning wages for somebody to build some of the equipment that required for our
▶ 1:16:01Thank you. And and Mr. Chairman, before I yield back, I just want to say this hearing is important, but let's not lose the forest for the trees. Uh we are talking about what is really hurting our small business, these tariffs. It's these rising prices, and it's something this committee can do something about. I yield back.
▶ 1:16:15Gentleman yields back. I now recognize Miss Vanine from the great state of Texas for five minutes.
▶ 1:16:20Thank you very much, Mr. Chairman, and let's get back to why we're here. our great uh our great witnesses here who are franchise owners. Uh franchising is the most in the strongest pathway to entrepreneurship in our economy. It's built upon the principle of local ownership. According to the International Franchise Association, more than 85% of franchises live and work in the communities that they serve and 64% are first-time business owners. These are not large corporations.
▶ 1:16:48These are local entrepreneurs who took a risk to build something on their own. Local ownership serves local communities and it keeps jobs, investment, and charitable giving rooted close to home. In fact, more than 80% of franchises give to local charities. I know Miss Angie K, we talked about it last night. And these franchises collectively contribute millions of volunteer hours each and every year. Franchising also creates highquality jobs.
▶ 1:17:13The IFA's value of franchising report shows that franchise employees experience faster wage growth, more generous benefits, and higher retention rates than employees of non-franchise businesses. This model works because it lowers barriers to entry. It offers entrepreneurs proven system. It establishes branding and ongoing support, making ownership more accessible for all. As I meet with small business owners, including franchises, I continue to hear concerns about regulatory uncertainty.
▶ 1:17:42uh particularly when it comes to the joint employer rule. When Washington blurs the lines between franchisers and franchises, it creates confusion. It discourages growth and it makes it harder for local owners to be able to succeed. And that's why earlier this year, I joined my colleagues led by Representatives Hearn and Davis in introducing the Bipartisan American Franchise Act.
▶ 1:18:03This legislation clarifies clarifies joint employer standards under federal law, preserving long-standing precedent, and it provides the certainty franchisers and franchises need to invest, hire, and grow. And I appreciate you commenting on that, Miss Patel. It ensures fairness while recognizing that franchises are independent small business owners. With more than 800,000 franchises operating across the country, the stakes are high.
▶ 1:18:26The American Franchise Act helps ensure that the franchise model remains strong, competitive, and fair so that more Americans can achieve their dream of business ownership and continue strengthening their local communities. Miss Angie K, in your testimony, you describe how franchising allows stylists to move from employees to become independent uh business owners. What is it about the franchise model that makes them that sort of upward mobility and the American dream more accessible?
▶ 1:18:55Well, I I think you said it earlier.
▶ 1:18:59Thank you for the question, Congressman, Congresswoman, excuse me. Uh, you said it earlier. You know that we have it's a triedand-true model and our team is set up for success. Our team, you the majority of them start with us and grow with us and we have a very strong career path that's focused and uh gives them the opportunity to grow and stay with the company, stay within the family and they are set up for success.
▶ 1:19:24So uh it gives them the opportunity also to have a path forward to ownership and to becoming an entrepreneur rather than staying stagnant you know uh over time and uh so we offer that growth and a successful business plan for them.
▶ 1:19:39What is it about being a small owner that wants you to that makes you want to give back to your community? Can you just show some of the ways in which you've been able to do that?
▶ 1:19:45Yes, you know we've been involved in several causes in our community. We're deeply embedded in our community. uh we employ uh you know hundreds of stylists uh in our business and through that we're giving back.
▶ 1:19:58Uh we are the majority of our guests are local uh guests that are you know neighbors, friends and the the name on our door represents our family and that's important to us that the service that we we provide and giving back to our community is uh you know rep you know it's a rep excuse me representation of our family.
▶ 1:20:19So for us, you know, it's just our our goal is to have a strong successful business model and continue to grow and what however we can to give back to causes and support everyone in our community. Our community supports us. It's about the relationships and we want to continue to support them in return. Thank you very much. Mr. Troutman, in your testimony, you know that the joint employer standard has changed multiple times over the last decade. How does that kind of regulatory whiplash affect the uh franchiser and franchisee relationship?
▶ 1:20:50Yes, the um the the whiplash effect is significant um you know when when it's broadly broadly um scaled if you will expanded then attorneys they pretty much tell their um the franchiseor to to hold back from helping out and um you know to to to provide necessary support to the um to the franchises that we training in training things like that.
▶ 1:21:20Um but by by the same token the whiplash also can be counter from the other side as well whereby when um you know if the franchiseor is too involved in the business if they get too involved then it gets in the way of what as an independent business owner me making decisions if you will for if you will for u my business you know so it's it's like a two-edged sword almost. All right. Thank you very much. I yel back.
▶ 1:21:51Gentle lady yields back. I now recognize Miss Sculton from the great state of Michigan for five minutes.
▶ 1:21:56Thank you so much. Uh Mr. Chairman and thank you to our great witnesses uh for being here today uh to hold this incredible hearing. Uh Miss Katseneva, thank you so much uh for being here today. The very first Real Housewife to
▶ 1:22:12Thank you, Congresswoman. It's an honor.
▶ 1:22:14Thank you. Thank you for being here. as you uh said in your testimony, excuse me. Uh as you said in your testimony before you were on TV, you were a humble small business owner. You've taken a small business to an incredible system of businesses that support so many through the powerful franchise model. Now, the franchise system, especially the rules around them, can be incredibly confusing. More confusing even than Lisa Barlo trying to explain how she knows Ben Afflac. But Miss Cat,
▶ 1:22:43that's confusing. and that's very confusing. Um, you however help to break down uh for your franchises so that they can be successful in their model. What steps do you take as a franchiseor to support your franchises and their development? Uh, you know, it's uh, thank you for the question, Congresswoman. It is uh, our job to support our team. They're not singular. They're not alone in this process. Uh, we do it together.
▶ 1:23:11They are not in business uh by themselves but they are business in business uh teamed up with us at Lunatic Fringe and we have created a sustainable business model and we are fully in support along every step of the way with uh all of our franchises and you know again just to add to that I believe that uh you know with we we have 26 years of hard work behind us and so we've really truly been able to set them up for success and and do it as a team.
▶ 1:23:41It's a real model for success.
▶ 1:23:42Thank you. Thank you for your work. Uh, Miss Patel, I want to turn to you for one moment. Uh, in your testimony, you talk about the American Franchise Act. We've been discussing it a lot here today. I am, uh, not only a proud co-sponsor, but a proud co-lead of that bill uh, with Rep.
▶ 1:23:58Kern and as as a a co-chair of the franchising caucus, I think it's really important to draw a distinction between this bill and other bills that purport to address the jo the joint employer rule such as the save local business act which came before Congress uh tried to come before Congress, excuse me, last week um which attempts to apply a much narrower joint employer standard to every business across the bo board, franchise or not.
▶ 1:24:24The franchise model is unique and we need a bill that targets specific specific issues that face this industry. This is not a one-sizefits-all solution. Workers need protection within every business model, but not every business model is a franchise. This bill will bring clarity without decimating certain uh worker protection issues. Um, with that said, Miss Patel, can you please explain how your business has been impacted? I know you've you've answered this in a number of different iterations.
▶ 1:24:55Um but by specifically the shifting joint employer uh rule. Oh,
▶ 1:25:00sure. Thank you, Congressman. Um again, we go back to certainty specific to my business. Um you know, as we grew from one hotel to what we have now, our staff grew with us and um we were able to um train them and um give them upward mobility. I had uh um some of my staff members that came to us and joined our company as housekeepers and now they are the general manager of their own hotels.
▶ 1:25:28So, not only does it give me certainty, it gives certainty my staff that are growing with me as I continue to grow. It's a team effort. The number one asset is not my real estate, not the hotel or the name on the building. It is the staff that work and live and breathe that property 24 hours a day, seven days a week. And so, we need certainty. We need to know that I own the hotels. My staff have a a position to play in those and want to grow with me. And you know, we can't do any long-term planning.
▶ 1:25:58We can't figure out, you know, in three, four years what's going to happen to a small business. We need certainty and that's paramount. Thank you.
▶ 1:26:05I hear that as the number one issue when I speak to to franchiseors and franchises in my district as well. The certainty is what allows you to continue to grow a business over over 26 years. uh and beyond. And the the unique setup of a franchise model deserves uh its own rule, which is why I'm so proud to champion the American Franchising Act. I've got just a few seconds. I I I would be remiss if I didn't also hit on tariffs. Uh Mr. Macregg, we're going to uh come to you.
▶ 1:26:32You highlight in your testimony how tariffs have created uh these certain challenges. New research reported by the Wall Street Journal has found that foreign countries have absorbed only 4% of the burden brought on by tariffs, meaning Americans are responsible for the rest of the 96%. Can you explain briefly why franchises in particular are vulnerable to absorbing these tariff costs?
▶ 1:26:54Yes. Um, we're we're vulnerable because we have to decide to absorb the cost or pass it on to our customer. That's just it. Point blank. No one else is carrying those dollars in between.
▶ 1:27:04Yep. Exactly. Thank you. Thank you, Mr. Chairman. I yield back.
▶ 1:27:07Gentle lady yields back. I now recognize Mr. Loa from the great state of New York for five minutes.
▶ 1:27:12Thank you, Chairman. Uh thank you for your leadership. Uh good afternoon. Uh for years, federal labor law and executive orders have lacked a clear and consistent definition of when two entities are considered a joint employer. That ambiguity has created uncertainty around wages, working conditions, and liability. And it has been especially disruptive for franchise businesses.
▶ 1:27:34In franchising, local owners operate under a national brand, but they are small business owners who control the day-to-day employment decisions, hiring, pay, scheduling, and workplace conditions. When the law ignores that reality, it creates confusion for workers and small business owners alike. That is why several pro labor Republicans and I opposed a bill last week that claimed to address the joint employer issue, but did so by applying the one-sizefits-all standard to fundamentally different industries.
▶ 1:28:05It created franchisers the same as prime contractors on complex construction sites. Even though contractors often exercise direct control over job site safety and wages while franchisers typically do not, that approach blurs critical distinctions and risks weakening worker protections while re where real control actually exists. Conversely, the American families, excuse me, the American Franchise Act takes a better approach.
▶ 1:28:34It establishes a clear standard based on substantial, direct, and immediate control over essential employment terms, protecting workers where control is real, while preserving the independence of independent local franchise owners. That's clarity, fairness, and accountability done right. Uh Angie K, good to see you. Uh in addition to being a well-known TV star, uh you're in the franchise business.
▶ 1:28:58Great. And um given your experience in that business, who makes the dayto-day decisions about hiring, firing, wages, scheduling, and work conditions at your locations? The individual franchisee or the franchiseor?
▶ 1:29:13Thank you for the question, Congressman. Uh the actual individual franchisee in their respected location.
▶ 1:29:20Great. Thank you. And Miss Patel, good to see you here today. uh you you own and operate a hotel franchise and you previously spoke about overseeing the construction at least at one site. Um, based upon that experience, wouldn't you agree that a prime contractor on a construction site who exercises direct control over at least the job safety at that site and often other labor conditions and pay and compensation is fundamentally different from a franchiseor who does not control the day-to-day
▶ 1:29:51activities in that franchise.
▶ 1:29:54Thank you, Congressman. Um, unfortunately I handle the finances and so, um, I'm not as familiar about on the development side of the day-to-day construction operations, but I'm happy to have our agent as he reach out to you with additional information.
▶ 1:30:09I appreciate it. I was leading the question. I know the answer. Typically, the prime contractor does in fact control a lot of the safety conditions at least and sometimes the compensation uh, for the secondary or the subcontractor. Given that dynamic, um, don't you think that that reality prescribes that Congress has two different approaches? One to franchise like things that are in the AFA and one that are things on construction sites.
▶ 1:30:36Congressman, I'm sorry. I'm just not as familiar with that part of our my business. Um, I again I can have H and I reach out to you with all the additional information on the development side.
▶ 1:30:47I appreciate that. I'm going to give the next question to my shipmate, my Navy man, Mr. Trapman over there. Thank you for your service, Mr. Chairman. You packed the seats today. I know we have a TV star in other places, but I think these two Navy men over here are the cause of a lot of folks in uh here with us today. Uh Mr. Traman, you own and operate uh several tropical smoothie
▶ 1:31:07Congressman. Yes, sir.
▶ 1:31:08I have three daughters. We go to branches in New York all the time there. We love it. Um, from a practical standpoint, sir, what happens to small uh franchise owners like yourself when fundamentally different situations such as construction sites and smoothie shops are lumped together under the same joint employer standard.
▶ 1:31:30So, what what happens for us is that um as as business owners, we're looking to run our our businesses ourselves as far as construction sites. um the the franchiseor is not involved in that aspect of it.
▶ 1:31:46You know, there is they do assist us when it comes to um maybe helping us identify a location based on their resources, but at the end of the day, it's up to the franchisee, you know, as my business to to to make that happen.
▶ 1:32:01And at your location, sir, the franchisee is the one who controls the pay, the hours, the work conditions,
▶ 1:32:08Yes, sir. That's correct. Uh in closing, Mr. Chairman, the American Franchise Act takes a narrower approach than the bill that's been mentioned. It recognizes uh the joint employer status only when there is a substantial, direct, and immediate control over employment decisions. I appreciate that and I yield
▶ 1:32:26Gentleman yields back. I now recognize Miss McCyver, great state of New Jersey for 5 minutes.
▶ 1:32:32Thank you again, uh chairman, and thank you to the ranking member for convening this hearing and also uh to uh Mr. Rico Marg, thank you so much for being here. Uh, as I mentioned before, he is a successful franchise owner in my district and I'm thankful for you sharing your expertise today. Uh, local franchise ownership has become an important pathway to entrepreneurship for many Americans who want to build a business but may not have the resources to start entirely from scratch.
▶ 1:33:01Franchising allows small business owners to operate independently in their communities while benefiting from established brands, operating systems, and customer trust. For many first-time entrepreneurs, that structure can make business ownership more attainable and sustainable. That role is especially important right now. Small business owners, including franchises, truly have their work cut out for them as they fight to keep staff employed and make a profit.
▶ 1:33:30Cost of everything from critical business equipment to food are rising and profit margins are shrinking. A truly dangerous combination. While the national brands may have scale and leverage, local franchise owners still bear the day-to-day risk of payroll, rent, supply cost, and financing. They feel inflation immediately.
▶ 1:33:53They face the same labor shortages and they observe higher health care and borrowing costs just like other small businesses. Congress has heard directly from small business owners across the country for over a year now that they need they need a go a federal government that understands how policies play out on the ground. We've heard from many in this committee.
▶ 1:34:16Franchise owners in particular need assurance that their interests as independent small businesses are not overshadowed by large corporate corporate actors within the same systems. Small business owners need a Congress that is focused on real world conditions, not partisan priorities. With that, Mr.
▶ 1:34:34Macarak, I would love to talk more about how many small business owners are now facing higher health co care costs after the Republican majority let the Affordable Care Act tax credits expire, focusing forcing businesses to cut benefits, wages, and hiring. You talked a little bit about it already, but what impact has the expiration of the ACA tax credits had on your ability or the ability of franchise owners generally to offer affordable health care to employees?
▶ 1:35:06Thank you for the question, Congresswoman. Um, the the transition in landscape of the healthc care has done a couple of things. One is we've seen colleagues at our organization have to go and seek a second job elsewhere for these larger corporations that provide healthcare which is absolutely a great benefit for the larger corporations. Um but what it does is it makes it challenging for us as small business owners to employ these colleagues.
▶ 1:35:31Uh the second thing that I've seen happen is it has put a strain on our colleagues in our organization where they've gone and taken second jobs to afford um health care on the open market um as a cost or as a result of the uh rising cost of the health care system.
▶ 1:35:47Thank you for that. Have you um personally seen or experienced yourself a delay in hiring uh or reduced benefits or shift costs onto workers as a result?
▶ 1:35:58Yes, we we have. Um, I've had um several colleagues come to me uh within our organization that have um expressed that they have had to leave us because they needed to go work at another company that provided healthcare benefits. Um, one one of the larger, you know, again multinational organizations.
▶ 1:36:17Um, I had another colleague uh we offered a promotion to who um was challenged at accepting this promotion because this individual um was on Medicaid and she was scared that taking a W2 role um was going to jeopardize her health care um that she desperately needed. And so those are just a couple of the challenges that we faced.
▶ 1:36:37Yeah. I'm happy you bring up that point cuz we hear those stories all the time about um folks trying to protect the healthcare that they have and you know scared to lose it or making a decision between health care and everything else. So, thank you so much for sharing that. Um I want to pivot just a little bit really quickly about the um the rise in energy and utility costs. Can you talk a little bit about how the rise in utility cost has affected your business? Yes.
▶ 1:37:03And um I will do a gentle nod to Governor Mikey Cheryl of state of state of New Jersey to please help us there as well. Um you know being that Sweat House is a business in the infrared sauna space, we do consume a lot of electricity and we have seen our energy costs um within the state of New Jersey. I can only speak to that have doubled and um and it's it's unattainable and again we as small business owners are forced with the dilemma. Do we absorb those costs or do we pass them on to our customer? There's no one else that I can hand them off to.
▶ 1:37:34Thank you. Thank you so much for that. With that, Mr. Chairman, I yield back.
▶ 1:37:37The gentle lady yields. I now recognize Mr. Downing from the great state of Montana for 5 minutes.
▶ 1:37:42Thank you, uh, Mr. Chair, and thank you to all the witnesses for being here. This has been a really interesting uh, conversation so far. Uh, I'm going to start with Mr. Troutman. And, uh, I want I begin with you and your path to franchise ownership. as you outlined in your testimony, uh, you served in the Navy before coming a franchise o owner. Um, you know, I was, uh, I was in the Air Force, which I've been told is just like the military. So, I appreciate your service.
▶ 1:38:09Um, your experience demonstrates how for many veterans, including myself, entrepreneurship is a meaningful opportunity to continue to contribute to our communities after our military service. There's a message I've also said many times, but I would love if you could elaborate on how the skills that you developed in the Navy have aided you in owning and operating your
▶ 1:38:30Thank you, Congressman. Thank you for your service and for that question as well. Um so yeah our military experience again guys working in um in an environment where we work for a mission for goals to achieve a common common place or be at a certain That's something that we learned in the military, right?
▶ 1:38:55And um Rico can speak to this as well, you know, and and so but if you're on a ship, and I can speak from a Navy perspective, everyone has a job to do, you know, and to get to a destination, we have to do it together. A lot of that likewise goes in franchising the same way, you know, working as a team, working as a system.
▶ 1:39:19um the franchiser and the franchisee have to be in lock step for the model to work and when it does it's a beautiful thing you know it's a truly a a mutually beneficial relationship that's why it's such an amazing amazing thing you
▶ 1:39:35you know but the military the military definitely helps us tap into those types of skill sets
▶ 1:39:41and veterans in your testimony you highlighted that veterans are nearly three times as likely to own franchises as nonveterans Why why do you think that
▶ 1:39:52familiar? Familiarity. Um we look forward we you know we all have goals and dreams and and missions if you will even even after if you were say without being um in the military after after retirement you're still asking the question what's next
▶ 1:40:11what happens is is that franchising gives us a framework to work together and to achieve missions and goals and it continues on and on and on and never ends. It's it's really an amazing thing.
▶ 1:40:23Well, thank you. I appreciate that. Uh what do you think are the main barriers that aspiring veteran entrepreneurs face when building their businesses
▶ 1:40:33barriers? Um access to capital. um information on that ex where where exists sharing of information more than anything else. Um knowing that franchising is a model that exists that the IFA the great people at the IFA are here today. you know, Matt How and his team, they do an amazing job uh in getting the word out,
▶ 1:40:57but a lot of people still don't really know that it exists,
▶ 1:41:01You know, education truly is is the framework I think most needed right now.
▶ 1:41:05Well, thank you. I appreciate your answers. Uh in the interest of time, I'm going to move on here. The franchising business model is an important component component of rural economies, including those in my home district of central and eastern Montana. And franchises help fill in service gaps. that helps uh create local jobs, boost tax revenues in areas where low population density can make sustaining small business difficult. I'm going to move on to uh Miss Patel here.
▶ 1:41:29Uh through your experience operating Promise Hotels in Eastern Oklahoma, can you speak to the impact that your business has had on local employment and e economic growth in the region?
▶ 1:41:40Yes, thank you. Uh Congressman, um huge e economic um impact. um when we besides uh acquiring hotels, we also do groundup development. So we are creating um taxes for our municipalities, creating jobs, and whether I continue to own that hotel or not, those will continue to be paying dividends off and um tax dollars to the federal government, to the county, the city, the sales, um and then payroll taxes and, you know, continue to keep employees employed there long after, um I'm gone.
▶ 1:42:11And so, uh, we feel like we're stewards of the community and, uh, play a role in making sure that, um, our cities continue to thrive.
▶ 1:42:19Building on that, how how do you approach, um, building and maintaining your relationships with the communities you operate in?
▶ 1:42:25Oh, um, open dialogue, networking, serving. We serve on boards. We, you know, just just today we got a call from uh a nonprofit because of the storm saying we need to house um volunteers and the unsheltered for this storm and our team jumped into action and plan to house them over the storm. So, we continue to serve our communities.
▶ 1:42:47Outstanding. Unfortunately, I've run out of time, but thank you uh for your responses. And on that, Mr. Chair, I
▶ 1:42:52The gentleman yields. Uh you can never get enough Navy at one small business committee hearing. And with that, I recognize my friend from California, a Navy veteran, Mr. Cis Cisneros, for five
▶ 1:43:02Thank you, Mr. Chairman, and I thank you to my two fellow shipmates uh for being here today and testifying. Um, you know, like yourselves, uh, and I got out of the Navy, my wife and I actually did purchase a franchise and opened up a business. Um but unfortunately uh we're finding out a lot of firsttime entrepreneurs are getting burned by franchises particularly when they get lured by lowcost unproven franchise models. Uh Mr.
▶ 1:43:33McCar you mentioned in your testimony that expenses doubled after purchasing your franchise in 2024. Uh what should entrepreneurs look for or focus on when considering the type of franchise that they want to buy? Yeah, thank you for the question and go Navy beat Army. Um, what I would say to that is is quite honestly to my fellow entrepreneurs out there is do your diligence.
▶ 1:43:59Um, because we cannot rely on the government to equal the playing field for us. the FTD document and other disclosures that we have all received here. Um, I can guarantee you the FTD that I've received and my colleagues here with uh the hospitality industry and the quickserve industry all look vastly different, but we all deal with the same things. We deal with payroll, rent, construction, um, and so many other things, but they all look different. Why is that?
▶ 1:44:29Why is that that uh an industry such as uh franchising which I think was mentioned almost a trillion dollars of our GDP is so unregulated that it could look vastly different. Um that's tough. So my feedback to fellow entrepreneurs is do your diligence, speak to franchises. I guarantee you the four of us on this panel would probably take your call and answer your questions. Um because we cannot expect the franchiseors to provide us everything that we need to make a sound and safe decision.
▶ 1:44:57Is there a better way that we can increase transparency between the the franchiseor and the franchisee?
▶ 1:45:03Yeah, great. Um, standardize the information that's presented. First of all, I think franchiseors are required to present 23 items in the FDD, also known as item number 1 2 3 4 through 23. And there's no standardization across the board.
▶ 1:45:20uh franchiseor A and franchiseor B can present different information which is in the item number 19 which is the financial information and performance of a business and franchiseors get to choose what they put in there and that's the information that we make decisions off of is what is in item 19 and all those other 22 items.
▶ 1:45:40All right, thank you very much for that for that answer. Um, Miss Katanovas, I got to admit I am a a fan of the Bravo universe. [laughter] Uh, Vanderpump Rules, Below Deck, and and I still one of the first ones my wife got me addicted on that I still watch today is the OC housewives. Unfortunately, I I have not had time to to see your show, but maybe after today that will change.
▶ 1:46:08It is the best, but it might be for the I I did see one of your viral moments though where you uh said you somebody you told them they do French fries and you do franchise.
▶ 1:46:21So I wanted to ask you what would your advice be to help somebody who wants to become a franchiser to become a
▶ 1:46:29Okay. Thank you for the question congressman. Uh I really believe that uh it takes years to obviously uh compile all the information and offer off offer a sustainable business model but I think integrally you need to have everything uh organized for your franchisee and uh you know make sure the model is tried and true before you offer it. Make sure you understand all aspects of the b the business so you're setting a future franchisee up for success. [snorts]
▶ 1:46:58All right. Well, thank you very much for that answer. Um,
▶ 1:47:02Housewives is a franchise, just so you
▶ 1:47:05It is. It is.
▶ 1:47:06You're just watching the wrong ones.
▶ 1:47:09Mr. Troutman, uh, just one question for you. Um, what do you think veterans need to be successful when they become franchisers? How can we help more veterans become, you know, franchises?
▶ 1:47:22Congressman, thank you for that question and thank you for your service.
▶ 1:47:25Um, thank you. So the the transition assistance program would be one good way of making um really focusing on franchising in that transition if you will. They may talk about business or things like that but to be specifically to talk about franchising in the tab program will help. Um additionally to that um yeah just making sure that um programs like boost to bost to boost to business if you will are promagated and and available.
▶ 1:47:55I'm working with the SBA as well. Um, you know, but getting the information out there, going to the bases, you know, will really help that
▶ 1:48:03I'm running out of time, but I got one real quick. And if you could answer this, uh, both of you actually, when you got out of the Navy and you went to TAP class, did you get information about franchises coming in that business?
▶ 1:48:15All right. Thank you very much. I yield
▶ 1:48:17Neither did I. Uh, I now recognize Mr. Weed from Wisconsin for five minutes.
▶ 1:48:23All right. Thank you, Mr. Chairman. Thank you to our witnesses for being here today. As a former franchise owner myself, I know firsthand how essential that it is that franchises understand their obligations and that franchiseors have the tools to enforce them. Uh recent events in Minnesota where a franchised hotel failed to uphold required brand standards remind us that the strength of this model depends on clarity, consistency, and accountability.
▶ 1:48:49When one operator steps outside those standards, it it just doesn't create a local problem. It undermines the reputation and hard work of every responsible franchisee who does things the right way. As we look ahead, my hope is that today's discussion helps us advance policies that cut red tape, keep taxes low, and provide the certainty franchise owners need to meet their obligations and continue, of course, to grow their businesses. Uh, Miss Patel, I'm going to start with you.
▶ 1:49:15In light of of those recent incident in Minnesota where a franchise Hilton property uh um refused service to federal law enforcement leading um you know to the public backlash and removal from the brand's network. How important is it for franchises to consistently uphold brand standards?
▶ 1:49:35Um very consistent. It affects everybody in in the franchise world in that brand. um you know c our customer set expects to see the same uh business model whether it's in Tulsa, Oklahoma, California or Texas. They want to see when they walk into a hotel it's exact same room wherever they go. And so uh brand consistency and upholding the our um our our standards is paramount for the brand trust throughout the system.
▶ 1:50:03So like when a franchisee discriminates against guests in such a public way, it undermines the entire brand. uh how how do responsible operators work to prevent those kinds of violations and what tools do franchiseors provide to reinforce those
▶ 1:50:18um well I can speak to my hotels are in Oklahoma and um we follow all the rules we follow federal law, state law, local law um and and and um welcome all guests. Thank you. so incidents like this I mean it highlights how quickly franchises can find themselves navigating legal, political and public relations challenges. How important is it for regulatory clarity?
▶ 1:50:46Um you had mentioned the stable joint employer standard in your remarks. How is it how important is that in helping franchises understand their responsibilities and and avoid costly missteps?
▶ 1:50:58Um it's paramount. you know, we need we need clarity in every aspect of our business. Um, from human resources, financing to loan documents to everything. And so, um, you know, none of us are attorneys here. You know, we we we went into this business to, uh, be be business owners and work for ourselves. And so, um, clarity and just common sense, um, standards for us to live by. Thank you.
▶ 1:51:26Thank you. Uh, Miss Katz Navvice, you mentioned the viral moment where someone questioned whether franchise owners are real business owners. What do you wish policymakers understood about the realities of running a
▶ 1:51:41Thank you for the question, Congressman. Uh, I think that, you know, it's the hard work that comes years before it. I said that earlier. You lose sleep, you lose money, you lose hair. uh we've we've been through the ringer, but uh you know, it's just that there is so much put into uh what comes before we actually offered our franchise to the public. And so just understanding that uh it's tried and true. It's consistent.
▶ 1:52:09Uh we would not be offering it if we weren't 100% sure that uh we could recreate our model not only in our city, but outside the city.
▶ 1:52:19And you mentioned um stylist Katie. Yes.
▶ 1:52:22Who went from, you know, employee to um an owner because of the franchise model. From your experience, what are the biggest barriers that prevent talented workers from becoming owners? And and how does franchising remove those
▶ 1:52:38Uh I think there's fear for uh someone that's more on the creative side, you know, for example, a hairdresser. Not sure if they understand, you know, the the business uh side of it. it's a whole other side of uh you know different than what they're doing on on the daily.
▶ 1:52:54So I think you know just allowing them to uh be part of the you know us to be part of the process and supporting them and you know for us uh we we basically uh we've done everything for them right so they can too learn as we did we started out as hairdressers so we're the prime example and now we own multiple locations and opened a franchise company so it is possible with the support of of a franchise company who's you know done done the work for
▶ 1:53:24you.
▶ 1:53:25All right. Thank you all for being great business owners.
▶ 1:53:28Thank you.
▶ 1:53:28I yield back.
▶ 1:53:29The gentleman yields. I now recognize the gentleman from California, Mr. Tran, for 5 minutes.
▶ 1:53:34Thank you, Mr. Chairman. Uh thank you to all the witnesses for being here. Uh Miss Angie K, in your testim testimony, you shared that you're the daughter of Greek immigrants who came to this country with very little and you built yourself a life through hard work and eventually creating jobs and ownership opportunities for others. That's truly the American dream. In districts like mine, which is home to little Saigon in Orange County, immigrant entrepreneurs are workers who are the backbone of neighborhood salons and barber shops.
▶ 1:54:04For Vietnamese refugees who fled their homeland due to Vietn due to the Vietnam war, they found success and a pathway to the middle class in the nail industry. My question to you is from your perspective as a daughter of immigrant of an im immigrant owner and a franchiseer, how do immigrants contribute to the success of small businesses like yours? [snorts]
▶ 1:54:25Uh, thank you for the question, chairman. I believe that uh the one value that your immigrant parents will pass down to you is hard work. saying yes to every opportunity. You are here for the opportunity in America to uh have a better life for not only yourself but your children and grandchildren. So one thing I've experienced being the daughter of an immigrant is that you know I had a job at 15 years old.
▶ 1:54:51I was taught that if I wanted something I had to work for it and no one was going to give me anything without seeing that I was willing to do the hard work for it. So uh you know and that's my experience with most immigrants uh children that I've met. you know, we've all been raised the same. So, we we took hold of any opportunity. We all had jobs earlier than we should have and uh you know, it continued on into adulthood. So, it's the work ethic. It's the values. It's the say yes to every opportunity that comes your way.
▶ 1:55:21That's a that's a great answer. Thank you for that.
▶ 1:55:24Um, you know, I'm going to ask the same question. How do immigrants contribute to the success of small business? Uh, Miss Tina P.,
▶ 1:55:33thank you, Congressman. um vastly um most everyone who's immigrated here came here for a better opportunity um we we did not have generational wealth um most of us and what I learned from my parents as long as well is um hard work um you do whatever it takes to make it work and so when you have that every day as a child saying look we're poor hungry and determined so we we work off of that um my dad used to uh after the oil bus
▶ 1:56:03we there was nobody traveling back in the 80s. He had to go get a job as a machinist so he can bring back a paycheck and pay for the mortgage um because there was no access to capital there and we had almost predatory lending back then because we had to do owner financing with extremely high rates and so um it's very important. We're the back immigrants are the backbone and risktakers um and they are determined to make it successful here.
▶ 1:56:29Thank you for that. And and really quickly, can I just ask you to uh what do you think of the climate of fear around deportation, how that affects small business owners, your ability to hire, retain workers, plan for the future? Um Miss Angie K, why don't you
▶ 1:56:45Uh well, you know, we thank you for the question, Congressman. Uh you know, in in this climate, we just continue to support everyone as much as possible. we continue to be inclusive in our hiring and in hopes of you know uh you know seeing that continued growth and success for for everyone. Miss
▶ 1:57:09thank you. Um, again, it's it's the theme of today's thing, certainty. Um, that can ease any fears or or or or heartburn. Um, so we just need certainty as small business owners that we we have enough to deal with as small business owners. And so adding more um certainty would help us immensely.
▶ 1:57:28Thank you, Mr. Troutman, Mr. McCare. Um, as a fellow veteran, I I thank you so much for your sacrifice to our nation. Uh I know uh what it takes to to serve because uh I come from the army, not the Navy. Thank you. Uh let let me ask you first uh Mr. Marie. Uh what can this committee do to better help veterans uh start franchise franchises?
▶ 1:57:50Yeah, thank you so much for the question. Um I I think what my colleague here said, uh Mr. Troutman, it starts with transition assistance program, also known as TAP, uh for people that are transitioning out of the military. When I got out, it was a two-week crash course on how to tie a tie and do a resume and then out you go. And so I think there's a great opportunity there with uh the Department of Defense and maybe like an IFA uh on how we can get what we do out there to transitioning service people because what we have is grit.
▶ 1:58:21You give us duct tape and 550 cord and we will build you an airplane. And with the few seconds I have left, Mr.
▶ 1:58:29Yes, sir. Then again, thank you for your service. Not holding an army against you, though. [laughter] But um but no, Congressman, um yes, that's that's that's it in a nutshell, right? The um to to really make sure that we're doing it intentionally to get to that granularity. I think the IFA going to u military bases or having curriculums infused into the military would be a a definite game.
▶ 1:58:52Thank you so much. Chairman, I yield
▶ 1:58:54The gentleman yields. Uh so we have a lot of Navy in the room. We also have a lot of Jersey in the room here today. And with that, I recognize Dr. Conway from the Garden State for 5 minutes.
▶ 1:59:02Uh, thank you, M. Uh, thank you, Mr. Chairman. Um, Mr. uh, Mayor Mayor Marg, uh, you raised the important issue. I'm a little bit off my notes, but you raised this question of energy, and our new governor, Mikey Cheryl, is taking some very decisive action uh, to uh, deal with the rising energy costs that are not only faced in New Jersey, but around the country. One of the reasons, and we're going to talk about some Trump policies here and how it's impacting businesses.
▶ 1:59:27You know, when you take off free energy, uh when you uh encumber solar, when you encumber wind, uh that uh causes dirty energy, higher priced energy to become the market leader and set the price for energy. It's one of the reasons why we're seeing energy prices go up and we're seeing the impacts on small business uh such as yours that you mentioned in as part of your statement. Uh but let me get off on tariffs. Another policy which has been quite uh damaging to small business.
▶ 1:59:54met with small business owners in my district and uh we know that um uh these uh the global supply chains and international trade directly impacts small business across the nation. A lot of our small businesses uh and the conversations I've had get uh parts and material for their own products that they sell in the United States and overseas from overseas to begin with and those tariffs are uh raising the cost of production for them.
▶ 2:00:19And of course raising those costs are often passed on to consumers, which is why so many consumers are seeing their costs go up by hundreds and thousands of dollars per year. Um, my constituents have raised concern over the confusion around tariffs. You tariffs at one level, one day it's at another level, one day it's one one country. We tariffed an island with nothing with penguins on it uh during uh this uh year.
▶ 2:00:42and uh and so it's increased the cost of raw materials and had a major impact on consumer prices and the cost of living and affordability concerns that impact uh so many Americans. Uh and we found uh that um people of course are trying to dodge these tariffs as they will do either through um uh payoffs or or other special deals for them. Chinese companies are setting up shell companies in the United States in order to evade uh the tariffs.
▶ 2:01:10uh can you um explain to us how uh tariffs might be impacting uh your business and whether and how you're managing uh the costs that tax on Americans as you try to sell uh your
▶ 2:01:23Thank you for the question. Um as I previously mentioned, tariffs impact us and our ability to open a location, build and equip a location because often times the material that's used, the equipment, the furniture, the fixtures come from overseas. um you know that's the problem there.
▶ 2:01:40The dollar amount of that tariff is um whether or not we as small business owners absorb that to our bottom line our profits which uh prohibit us from growing and providing healthcare uh take out a line of credit to pay that tariff bill or do we pass it on to the consumers? Um I I will tell you congressman uh this year um not on the topic of tariffs but more on the topics of uncertainty.
▶ 2:02:06Um there were days where I would get a call and say when is the boat going to land so I can look at the news to see what the tariff was of the day because that was going to be the dollar amount that I had to go find for our business. We just want
▶ 2:02:20I we've heard that over and over again. Let's move to another uh Trump policy here. Uh the corporate transparency act was enacted in 2021 with the intent of combating illicit finance. The intention of the corporate transparency act is to increase transparency in business ownership in order to combat certain financial crimes like tax evasion, money laundering, and terrorist financing.
▶ 2:02:43However, on March 2nd, 2025, the Trump administration and the Treasury Department started the process of dismantling the uh corporate transparency act. The administration said that they will no longer enforce the penalties and fines against domestic companies and individuals uh that intentionally fail to complete their beneficial ownership information reports and only require beneficial ownership information reports from foreign firms. and it's thought that this would unleash American uh prosperity. And I've filled out these forms. I have a small business myself.
▶ 2:03:14It's doesn't seem particularly uh complicated. uh but um here but we know it's important in in the war on terror and any and in terms of enforcing laws most people would say uh that you ought not be um uh assisting um uh those to who are attacking our country who are money laundering involved in uh trafficking of human beings and everything else. So uh I consider those changes extremely uh reckless.
▶ 2:03:43um how uh is uh weakening of the corporate transparency act impacted small business? If you can answer that or anyone else who can can answer that question, I'd certainly appreciate it. And uh do you think transparency in corporate structures in the United States is important uh for deterring fraud as it relates to small business? And I'll yield back. I think I just ran out of time there. Gentleman yields. I now recognize from the great state of Maryland, Mr. O'Hlesky for five minutes.
▶ 2:04:10Thank Thank you very much, Mr. Chairman. Uh, and thank you to all of our witnesses today. Thank you to the service men and women of uh, both our witness table as well as my colleagues here on the day. I'll just get that out of the way. We are grateful for your service uh, to this this fine country. Uh, I want to open by saying how proud I am that my my home state, Maryland, is home to 15,000 franchises uh, and franchise locations that employ more than 155,000 people. Mr. Troutman, thank you for the shout out earlier. I apologize that I wasn't here for it in person.
▶ 2:04:41Uh, but please allow me to return the favor to you and just say how proud we are to have you all over Maryland. I'm not sure if you're in Maryland's second congressional district, but we're going to work on that. And, uh, much much success to you in your new cafe that's about to open up as well. U, but it's it's a business model that we know that creates jobs, that strengthens our economy, and it's why I'm also proud to join the bipartisan group of legislators uh, co-sponsoring the American Franchise Act. I think it's an important step forward for this committee, for this Congress, and for this country.
▶ 2:05:10uh closer to home in my own district, a constituent and a friend Richie Huffman. He founded the Celebrate School in 1994 that started as a single preschool. It is now a nationally recognized brand and franchise with over 30 locations operating in 18 states. The growth of these high-quality daycare and pre preschool programs have now provided for more than a thousand jobs across the country and empowered their customers to also pursue their dreams in the process of having highquality childare.
▶ 2:05:38Recently, Richie, now president and CEO of Celebrity Schools, traveled to Louisville, Kentucky to help mentor a couple with military service. Since we're on the theme of military uh and teaching backgrounds, they now are interested in applying these skills through a franchise like Cbury. We talk [snorts] a lot about um this committee, how we support and serve veteran entrepreneurs looking for their next step, and the franchise model not only can do that, as we see, it often does.
▶ 2:06:03Uh, I also want to applaud Richie for uh, celebrate supporting many philanthropic ventures through partnerships with Ronald McDonald House, local children's hospitals, ensuring that their franchises and the children they teach uh, also know the value of giving back to their communities. [snorts] We know that franchising give Americans opportunities to succeed and they enrich our community. So, I'm excited to wrap up this productive conversation we've had uh, today. Uh, a little light-hearted way uh, to start here.
▶ 2:06:32Uh, Miss Castnavas, if if I could, um, your franchise is called the Lunathic Fringe. Is that right? Did you take any inspiration in naming it from members of Congress? [laughter]
▶ 2:06:45Well, uh, thank you for the question, Congressman. No, that wasn't the inspiration, but maybe after today it, uh, [laughter] we'll have, uh, inspiration on future locations and, and
▶ 2:06:57I appreciate that. Um, I'm going to open this up to everyone. Um if we can start with Mr. um uh Castnavas um just want to open up the conversation of tariffs a little bit. I think we started to dive into it. Uh Miss Patel, you mentioned the need for continuity and certainty in in conducting your work. I'm just curious if uh and again we can start there and work our way down if folks want to weigh in.
▶ 2:07:17I'm just curious um if you could discuss the cost and the disruption to that certainty uh that you've experienced through this tariff process if if you've if you felt it at all. And we can start there and just work our way down. Yes, as previously mentioned, um the the uncertainty just causes a disruption in our business, a disruption for our growth and a disruption for the colleagues that we employ. Um while they they aren't aware of the tariff costs, it's our responsibility to carry that burden as leaders.
▶ 2:07:48Um but nonetheless, it still causes a disruption in our business and u requires us to make decisions on where those dollars go. Um yes um Congressman yes we're seeing increases as well in our cost of goods. So as we look at our COGS is what they're called we do see increases um likewise to um for a new buildout equipment costs are likewise elevated.
▶ 2:08:19Congressman um honestly in our business I think I've said this before we haven't fully recovered from the pandemic. It was a a gut-wrenching time. Um, and so we and we've continued to see costs going up over the last 5 years and um no end in sight. So hopefully something can be done where we can start seeing some um uh certainty in pricing.
▶ 2:08:42Thank you, Congressman. Our business, our particular business hasn't really been affected um as sounds like as much as others at this time. And I'll just close by returning to our lighthearted start by saying that I'm I'm very proud. This is a committee that that doesn't that isn't the case. This is a bipartisan committee where we often come together on important issues just like this. And I hope that that is something we continue both for this committee, this Congress, and this country. And I thank you all for your time. With that, Mr. Chairman, I yield. Well said. The gentleman yields.
▶ 2:09:10Uh I'd like to thank our witnesses uh for their testimony and for appearing before us today. Without objection, members have five legislative dates to submit additional materials and written questions for the witness to the chair which will be forwarded to the witnesses. I ask the witnesses to please respond promptly should that happen. If there's no further prisons without objection, the committee is adjourned.