How does sequestration affect small business or the opening of small businesses?



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Posted on (Answer #1)

I assume that you are asking about the sequestration of government money that is set to begin because Congress and the President have been unable to agree on ways to reduce the deficit.  If so, there are two likely impacts on small businesses.

First, small businesses may suffer if the economy slows down.  The sequester is likely to reduce demand in the economy as a whole because there will be less government spending.  People who once got money from the government will get less money or no money.  This will prevent them from spending.  The loss of their spending may make it harder for small businesses to find customers.

Second, small businesses may suffer from the loss of government services.  For example, let us imagine that a small business will be selling imports or will be using imports to make the things it sells.  If the Customs Service has to furlough employees, imports will be delayed.  This will cause the small businesses to lose money.  New small businesses may experience delays in getting necessary bureaucratic work done if bureaucrats are on furlough as well.

Thus, small businesses may be harmed by reductions in demand and/or from the loss of government services.

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