How the Government Shutdown Affects Business

 

We all know that currently, at least part of the United States government is closed. But in addition to about 500,000 workers out of work, an additional 300,000 are working, illegally, without pay.

During the last government shutdown, a Federal Court authorized a payment to those employees who were forced to work without being paid of twice the amount they were initially owed by the government.

As of this writing, several lawsuits have been filed by Federal employee unions to restore payments to those required to work.

 

BUT WHAT ABOUT …

But what about those businesses and the employees of those businesses that are partially or completely dependent on the government.

These businesses range from government contractors who may never recover the money lost to restaurants that are close to government buildings and depend on those employees for their business.

The shutdown goes further; potentially much further into the business ecosystem.  For example: While the IRS will continue to collect funds, it will not answer taxpayers’ questions. 

And for those businesses and employees that are waiting for tax refunds, while the IRS has stated that they will issue refunds, they have not stated how long it will take during the shutdown. 

On the bright side, if you are due for an audit, no audits will be conducted during the shutdown.

 

WHAT IF YOU ARE TRAVELING, HIRING OR BORROWING?

If a business has an employee that is waiting for a passport, delays are expected, especially where passport offices are in government buildings that are shut down. 

And if you need to hire new employees, that may be a problem.  One of the casualties of the shutdown is the federal E-verify system that determines the eligibility of an individual to work in the United States.

Hoping to get an SBA loan for your business?

Lenders cannot submit loans into the approval que for SBA loans and will not receive loan numbers during the shutdown.

SBA loans are on hold until the shutdown ends.

In past shutdowns, federal workers received back pay.

However, this is not assured because it requires Congress and the White house to pass a law mandating back pay.

 

THE “TRICKLE DOWN” EFFECT …

Consumer confidence is the unknown issue given the shutdown.

For example, a paper provider that does business with a government contractor may lose that business during the shutdown.

If the time-frame extends, the paper company may have to reduce expenses through layoffs, impacting employees that are unrelated to the government. 

And that “trickle-down effect will increase over time.

If a government contractor or even an unrelated business is depending on an IPO or a share offering, the process will be delayed as the SEC cannot process applications.

 

THE HIT TO GDP …

The shutdown could trim at least $6.5 billion a week from the nation’s economic output, economists at Standard & Poor’s suggested. 

“A shutdown affects not only Washington and its employees, but also has ripple effects across sectors throughout the country – from shopping malls to national parks, from contractors to hotels,” said Beth Ann Bovino, chief United States economist at S.&P.

Given that 800,000 Americans have less money to spend and a major part of the government is not spending money at its normal rate, the effect, over time, can be disastrous. 

In addition to the consumer impacts, there are impacts on all sorts of businesses.

 

DEBT SERVICE EFFECTS …

We have written in the past about the high level of corporate debt.

That includes issues like real estate debt for the mortgage holders of buildings rented to the government.

The inability to service debt all sorts of debt from companies that do business with and rent to the government; as well as the impact on consumers unrelated to the government, can begin to impact banks that have made those loans.

Without cash flow from loan payments, new loans begin to dry up.  And the impact continues to spread.

Hopefully this shutdown will be short lived.

If not, the financial impact of this decision will spread well beyond the government employees affected.

 

Revitalization Partners is a Northwest business advisory and restructuring management firm with a demonstrated track record of achieving the best possible outcomes for our clients. And now, we’ve written a book to help our readers understand the issues facing their businesses. You can find this compilation of our business thoughts at: https://revitalizationpartners.com/we-could-write-a-book/ or on Amazon.

We specialize in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations.

Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering or Receivership/Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.