Beware: Sequestration Would Hit Hard at Small Businesses

Many forecasters say that the nation may well be headed to the “fiscal cliff,” and that if it does end up there, small businesses will be the first to fall off.

If the process known as sequestration, part of the so-called fiscal cliff, actually becomes reality next January, the mandatory federal spending cuts that sequestration involves will hit hard at small businesses that provide key products and services to the federal government.

Any small business owner therefore needs to be aware of the possible dire effects of sequestration, which will occur unless Congress and President Obama reach agreement on the federal budget before January 2, 2013.

According to a September 20, 2012, report by the Aerospace Industries Association entitled The Economic Impact of Sequestration on Small Business, “Sequestration is the law of the land and aerospace and defense companies are girding for what many commentators have described as a purposeful fall off a ‘fiscal cliff,’ one that will wreak havoc both on the economy and national defense.”

The report is very specific about the possible results of sequestration: “As contracts are cancelled, re-negotiated, or otherwise reduced, small business leaders will have limited flexibility in adjusting their business model. While some will seek to diversify, others will just downsize, and still more may simply have to close their doors.”

Government officials have pointed out that small businesses won’t be specifically targeted during the sequestration process and that existing set-aside programs won’t be repealed. But there will be less money to spend, and government agencies will have to make difficult choices and stop funding some projects. This will hurt small business disproportionately.

As reporter Matthew Weigelt wrote recently in Federal Computer Week:Small companies don’t have the deep pockets and diverse business investments of the major federal contractors, experts say. Large contractors have sufficient scales of operations to survive tight times, even if it means they have to adjust their business processes or cut jobs. Small firms usually lack the ability to adjust.”

And it’s not just high-tech and defense companies that will be hurt. The Aerospace Industries Association report gives the example of Deanna Smith, the owner of a small tobacco and cigar shop in a Massachusetts town near a General Dynamics plant. She fears that if the major defense contractor lays off employees, she and other store owners will be hurt as well.

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