Budget cuts wallop small businesses
NEW YORK — LaJuanna Russell has lost a third of her revenue and about half of her staff to federal budget cuts.
“It has been just a very difficult year,” says Russell, whose management consulting firm, Business Management Associates, has had contracts with federal agencies including the Pentagon and the Departments of Homeland Security and the Interior.
The budget cuts, known as sequestration, slashed Russell's $3 million in revenue by $1 million. Her staff of 25 is down to 13.
Bob and Bonnie James had every one of their company's federal contracts, including training work for the Army, Marines, Air Force and the government-funded Cherokee Nation Hospital, canceled when the cuts hit. The sequester erased tens of thousands in revenue and stamped out hiring plans.
The $85 billion in budget cuts officially began March 1, but owners like Russell started feeling the impact last summer. Government employees cut contracts in advance, anticipating that they'd lose funding. Among those badly hurt were businesses that provide training and consulting services that aren't considered essential. Like Russell, they've had to lay off workers as their revenue plunged.
There is some hope. Small business owners may get a boost from so-called ‘use-it-or-lose-it' federal spending as the end of the government's fiscal year — Sept. 30 — approaches. Some report that they are hearing from agency contacts that they haven't spoken to in months.
But end-of-the-year spending won't reverse the pain that contractors like Russell and Bob and Bonnie James have felt. The budget cuts have hurt them professionally and personally, and forced them to make tough decisions.
Business Management Associates helps employers, including government agencies, come up with more efficient ways to get work done and assists with human resources issues. Under one contract, the company developed a staff recruitment plan for the Department of Homeland Security. The Alexandria, Va., firm provided support as the plan was carried out.
Russell started feeling the effects of the federal budget cuts in July of last year, months before they were in place. At the time, she had seven federal contracts. The Department of Homeland Security cut back the number of hours that her employees were working on one contract by two-thirds. Then the contract was shortened by four months.
Russell was caught by surprise. She had to lay off five staffers because she didn't have another contract to replace the lost revenue.
“Because of everything going on, there was nothing else to move them to,” she says.
Another contract was cut in January, and a third in May. Russell's bank was concerned about the loss in revenue and the fact that Russell had borrowed from her line of credit to meet expenses. Bank officers wanted to know when she'd be able to replace the business she lost.
“I said, ‘what do you think I've been doing? I've been submitting bids all year, but the government hasn't been sending much money,'” she says.
The bank asks her each month how things stand, and requires her to fill out extra documents about her company's finances.
“They're leaning on my neck. It's hard to breathe,” she says.
March, when the budget cuts officially hit, was the low point for Russell. “When you take two steps forward and one step back, it's hard to pick yourself up and keep moving,” she says.
But her mother helped her come out of her funk.
“She said that God had a plan for me,” Russell says. “She told me to keep my faith and maintain positive thoughts.”
And Russell's own optimistic streak took over. She believes that she'll be getting more contracts from the government perhaps as soon as this month. Agency employees are asking for contract proposals. Government contractors may be able to nab some revenue as agencies scramble to spend money that they will lose if they don't spend it by Sept. 30.
“Everyone says it's going to happen when this fiscal year ends,” she says. “If I can get through this period now, then I'll be in more of a ‘let's see what happens' state.”
REVISING THE PLAN
Bob and Bonnie James were looking forward to a big jump in revenue this year at their company, Advanced Reading Concepts, which trains people who write reports and make presentations to read and analyze faster. They expected to get work from a growing number of federal agencies and planned to hire two staffers.
Then the budget cuts hit. Every one of the company's existing federal contracts, including work for the Army, Marines, Air Force and the government-funded Cherokee Nation Hospital, was canceled. One class was canceled the day before it was to start, and the government refused to pay $5,000 in the company's travel and other expenses.
“We were hearing, ‘we have no training budget,'” Bob James says. At some agencies, the services his company provided were considered “fluff.”
The company's clients include scientists, engineers and intelligence analysts in the military. Advanced Reading Concepts, based in Columbus, Ohio, also did work with the General Services Administration.
“The total value of the sequestration action on our business is $71,000 — tough for a small business to swallow,” James says. That was 60 percent of the $120,000 in revenue the company had in 2012.
“Last year was a building year. We went after and got contracts with the GSA, and then added a person,” James says.
The company expected to take in as much as $200,000 this year. Instead, the plunge in revenue has forced James to put off the planned hires and cut his office manager's hours by 20 percent.
Advanced Reading had focused on corporate customers until the recession began. Then corporations began canceling their contracts, and the Jameses began seeking out and signing contracts with the government.
“Now we're scrambling to get back into the corporate area as well,” James says. He regrets focusing so much on government work in recent years. “Shame on us for not mounting a dual effort,” he says.
The couple's personal life also has been affected because money is tighter. They're not going away on vacations and going to restaurants has become a rarity.
“We probably eat out 10 percent of what we used to,” James says.
Like Russell, he's hoping that in the waning days of the government's fiscal year, some money will be freed up. Agency employees say they may get some permission to spend.
“We'll be trying to mine that and maybe we can salvage something out of the fiscal year 2013 budget,” he says.
And he's working on proposals for the new fiscal year. Agencies want their employees trained if they can get the funding.
“All we can do is suck it up and hope we get through it, and hope that fiscal year 2014 can bring some sanity.”
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