Impact of the Sequester on Small Businesses is Unclear

As of March 1^st, the Sequester has officially begun. Government-wide budget cuts have been implemented and small businesses seem to be the early victim. The situation looks particularly troubling for small businesses that deal with the Department of Defense and related agencies. According to the Small Business Administration, 35% of Department of Defense suppliers are small businesses. In many cases, government agencies are the premier customer for these small firms, making the loss of federal contracts potentially fatal for these companies.

Economics expert Dr. Stephen S. Fuller of George Mason University fears the Sequester could be even more devastating for small businesses than many realize. He believes that in addition to the loss of prime contracting opportunities, many small businesses are subcontractors to government agencies such as the Department of Defense. Therefore, the spending cuts will have a trickle-down effect on small businesses that could be equally devastating. Fuller mentions that in addition to this, many small businesses act as suppliers or vendors for prime federal contractors without even knowing it. This ignorance prevents proper strategic business planning for these firms that could lessen the effects of the Sequester. Fuller estimates that approximately half of the projected two million job losses resulting from the spending cuts could come from smaller firms.

Small businesses across the country are beginning to brace themselves for the effects of the recent Sequester. Many firms are attempting to diversify their clients amongst different government agencies and further into the private sector. While it still remains to be seen what the true effects of the spending cuts will be on smaller firms, many companies are bracing for the worst. It is also worthy to note that the aforementioned budget cuts will likely effect all businesses including those that do not have federal contracts. The cuts are predicted to have a ripple effect that will show decreases in GDP and increases in unemployment, which foreshadow a recession.