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How Budget Cuts Might Affect Small Businesses

The Department of Energy had the second largest amount of primary contracts in the year ended Sept. 30, with $25.1 billion, and No. 3 was the Department of Health and Human Services with $19.1 billion.

Businesses located anywhere in the country could be at risk for having their contracts cut. But three states â¿¿ Virginia, California and Texas â¿¿ may be the most vulnerable. Those states accounted for more than a quarter of all federal primary contracting dollars, with a combined $145 billion in the year ended Sept. 30.

Q. When will small businesses start feeling the impact of the budget cuts?

A. The cuts would take effect Friday, but the full impact may not be felt for some time. Government agencies cannot immediately furlough workers; they're required to give employees a month's notice. Also, agencies may still not know exactly where they'll be making cuts.

But government agencies are holding off on new contracts or aren't releasing money that has been allocated for contracts. Many agency employees don't know yet where they're going to need to make cuts â¿¿ or how big the cuts will be. They don't want to pay out money they might need for other programs. Spending by the Pentagon fell sharply in December because contracts went on hold, according to Small Business Administrator Karen Mills.

Contractors may also have a harder time doing business with the government if agency employees are furloughed. That could slow the process of getting contracts or contract payments approved.

Q. What are small businesses doing to try to offset the damage from the cuts?

A. Surveys of business owners have shown that they've been reluctant to hire or expand because they don't want to increase their expenses when their revenue looks uncertain.

Some government contractors are seeking corporate customers to make themselves less vulnerable to federal budget cuts. Some are looking for ways to cut expenses on contracts so budget cuts would have less of an impact.

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