How Budget Cuts Might Affect Small Businesses

By JOYCE M. ROSENBERG

NEW YORK (AP) ⿿ Small businesses across the country can expect to feel some pain if $85 billion in federal budget cuts go into effect on Friday.

Many companies are already being affected by the cuts, particularly those with federal contracts or that are subcontractors. Government agencies have been holding back on signing new contracts. They've also held off approving funds for existing contracts ⿿ for example, multi-year contracts that require money to be released in increments.

There is still much uncertainty about what might happen and when ⿿ and what businesses will have to do if the cuts are made.

"The government might come back and say, 'we're going to lose X amount of funding and you need to make adjustments to your spending levels on this particular contract,'" says Shiv Krishnan, CEO of Induscorp, an information technology company in Vienna, Va., that gets almost all of its revenue from the federal government.

"Do I let certain people go, or do I initiate a furlough, asking everybody to feel some of the pain? We don't know that yet, until the government gives some direction to us," he says.

Other small businesses are also likely to suffer. Retailers' revenue could fall because furloughed federal workers will have less money to spend. Restaurants, particularly those located near federal office buildings and other facilities, are likely to have fewer customers.

Anxiety about budget cuts has been one reason why small businesses have been slow to hire in recent months. Economists warn that the cuts could send the country into another recession.

Here are some questions and answers about the budget cuts and their expected impact on small business:

Q. Why are the budget cuts happening now?

A. A law passed by Congress in August 2011 called for automatic spending cuts if lawmakers could not agree on reducing the budget. The cuts, which now total $85 billion, were originally supposed to take effect Jan. 1, but Congress put them off for two months as part of an agreement on income taxes.

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