Shutdown takes heavy toll on small businesses
The shutdown of the U.S. government is making it tough for small federal contractors like Craig Stowers to keep their businesses going.
Stowers is tapping his company’s line of credit because he doesn’t know when it will be paid for work it’s done for the Defense Department.
“I’m juggling funds now, just to keep afloat,” says Stowers, CEO of Vienna, Va.-based Ramarc Solutions, a provider of technology hardware and services for websites, wireless networking, Internet security and teleconferencing. The company gets about 25 percent of its revenue from the government.
Some small contractors have had to lay off employees because there’s no work for them while the government is shut down. Others are dipping into credit lines because they’re not getting paid for work they’ve done, or for goods they’ve shipped. Many companies face longer waits to get contracts approved because federal employees aren’t processing previously submitted bids.
Stowers will have to pay interest charges on his credit line and has no idea yet how much that will cost. He also had to cancel trips for staffers who were supposed to fly to New Mexico to install videoconferencing equipment at an Army National Guard base. He’s not sure if hotel charges and airfares will be refunded.
Small businesses are likely to suffer more than larger ones from the shutdown because they don’t have the financial cushions big companies have.
“Their margins are a lot smaller and their cash flow is slimmer, so any type of delay is going to put them into jeopardy,” says Elizabeth Hyman, vice president for public advocacy at CompTIA, a technology industry trade association whose members include large corporations like Microsoft and much smaller tech companies.
The government owes Lynn Petrazzuolo’s company $100,000, but it’s not paying up during the shutdown. Her Alexandria, Va.-based company, Avanti Corp. helps clients comply with environmental regulations and measure health and ecological risks. Its customers include the Interior Department and it gets all of its revenue from the government. She’s been forced to furlough nine workers and has reduced four full-timers to part-time hours.
“That’s the hard part, explaining it to employees,” Petrazzuolo says.
International Code Design, which gets more than half of its revenue from the government, can’t work on projects for NASA because its staffers need to be in contact with government workers who are now furloughed.
“Everything we were doing came to a standstill,” says Michele Jackson, chief operating officer of the software company in Greenbelt, Md. She has had to tell the company’s handful of freelancers there’s no work.
Equally frustrating for Jackson is that the company submitted bids for new work by an Oct. 4 deadline, but has no way of knowing if they were received. The shutdown is delaying the contract approval process.
Even before the shutdown began, small businesses expected it to hurt. In a survey of small companies taken in August and September by Pepperdine University’s Private Capital Markets Project, nearly a third expected the shutdown to have a negative impact on their business if it lasted just a week. Forty-two percent said a two-week shutdown would hurt them, and 60 percent said their companies would be hurt by a one-month shutdown. The survey also found that the longer a shutdown runs, the more it will discourage small businesses from hiring.
There are other challenges. With Small Business Administration employees furloughed, Santiago Valdizan will have to wait longer to get what’s called an 8(a) certification. That certification is aimed at helping socially and economically disadvantaged business owners compete for government contracts. Valdizan has put in his application, but it’s now on hold.
Valdizan, who owns Joint Technology Solution in Fairfax, Va., does have some contracts, doing information technology consulting for the Army and Army National Guard. He wasn’t able to work on them last week, but says his operations were back to normal after his contact in the Defense Department was recalled to work this week. His company gets 100 percent of its revenue from the government.
The impact of the shutdown will continue for Samantha Enslen’s company well after government employees get back to work. Enslen’s Tipp City, Ohio-based company, Dragonfly Editorial, does writing and editing for agencies including the Defense Department. Enslen was ready last week to turn in a first draft of a paper for the Department of Homeland Security, but now must wait until the shutdown ends. That will hold up payments that she had expected to get in the coming months.
Enslen, who has three full-time staffers and 25 freelancers, gets about a quarter of her revenue from government work.
“Let’s hope that everyone gets rolling again before we have troubles with payroll,” she says.