According to a poll by Paychex, 1 in 5 business owners said the recent government shutdown has negatively impacted their business. As federal programs were suspended during the shutdown and government employees weren’t being paid, small businesses suffered numerous consequences.
Now in hindsight, here is what a government shutdown means for small businesses and how small-business owners can stay afloat during those trying times.
Government Operations are Suspended
During a government shutdown, any federal employees who are not deemed "essential" do not continue to work. Additionally, many government workers' paychecks are temporarily suspended.
Moreover, government services like passport processing, tax refund distribution and more are suspended. In addition to the suspension of these services, the following departments in Washington, D.C., have been temporarily closed:
- Housing and Urban Development
As a result of the extended shutdown, small businesses throughout the country are experiencing considerable consequences.
Countless small-business owners throughout the country rely on loans from the Small Business Administration to fund their daily business operations. However, as the SBA is a government organization, it is not able to continue processing loans during a shutdown.
According to the poll from Paychex, 29% of business owners who reported they were negatively impacted by the shutdown stated that their inability to apply for SBA loans has hindered the growth of their business. This government shutdown has restricted many small businesses throughout the country from securing the financing that they need to continue to run their businesses.
The most significant residual effect of the shutdown on small businesses is the decrease in spending. As hundreds of thousands of government employees throughout the country were not being paid during the shutdown, many small businesses saw their customer base decline significantly. Additionally, some small businesses suffered as payments from government contracts were delayed.
According to the poll from Paychex, business owners reported suffering from several other consequences, including:
- Inability to access E-Verify, which helps employers confirm employee eligibility.
- The suspension of data services that are provided by the government.
- The delay of SBA loan applications that were submitted before the shutdown.
These factors have proven to significantly impact local, state and national businesses.
Prepare for the Next Shutdown
As a government shutdown can be devastating for small businesses, business owners should take steps to prepare themselves for the next government shutdown. Consider implementing these strategies to ensure your business is protected.
Create an Emergency Savings Fund
You likely have a personal emergency savings fund. The same should apply to your small business. It can be difficult for small businesses to save money, as many of them are already operating with very thin margins. However, businesses need to have an emergency fund to sustain themselves during a shutdown.
Evaluate your monthly business spending and ensure your emergency savings fund includes enough money to cover these expenses for at least a few months.
Diversify Your Clientele
Businesses that heavily rely on the government and federal employees should strongly consider expanding their customer base. If you run a store near a federal building or military base or you depend on government contracts for revenue, then a government shutdown could completely stop your revenue.
Additionally, you should consider offering special sales and discounts to federal employees affected by the shutdown. It may not be ideal, but ultimately, some revenue is better than none.
Create a Recovery Plan
Even if you do your best to prepare for a shutdown, you might still suffer the consequences. As such, you should create a business recovery plan. According to the Insurance Information Institute, a business recovery plan for non-natural disasters should include:
- Compiling a list of important contact information. This should include clients, contractors, financial institutions, suppliers and other resources.
- Identify critical business operations and the resources you need to support them.
- Review financial information such as loan repayment terms.
In addition to these steps, you should consider reviewing your monthly expenses and cutting out anything that is not essential. Contact your loan providers and tell them how the government shutdown has impacted your small business. They will likely be able to establish new repayment terms to accommodate you.
An extended government shutdown can be disastrous for small businesses. Due to reduced consumer spending, suspension of the Small Business Administration's loan programs and other factors, small businesses often experience a drastic decrease in revenue. Consider implementing a few of these strategies to help protect your business in the event of another government shutdown.