A Small Business Perspective

Fri, 2013-10-04 14:55 -- nitrous

MicroTech President & CEO Tony Jimenez is on speed dial of several news media outlets looking for front line insights regarding the challenges being faced by small business as a result of Sequestration, the Federal Government shutdown, and the fast approaching Debt Limit mêlée. As Jimenez explained, “Individually these things would be crippling, but together they are the “perfect storm” that is far from perfect. The focus absolutely has to include the domino effect these traumatic events will have on corporate cash flow, liquidity, and survivability. The Government just completed the annual end of FY spending surge. Companies book revenue and then process invoices, except in a Government Shut Down it means there is no one there to process the payments for those invoices, because they Government is closed! That means a cash squeeze for corporate America – especially for small businesses without a large cash reserve. If we don’t get paid how can we pay our employees?-- talk about collateral damage!”

Jimenez added, “Let’s talk about what happens to those of us closest to ground zero! Some of our people are still on site working and some are home because their contracts were issued a stop-work notice. Those that are still working expect to be paid and those at home (that are on leave, vacation, or paid time off) also expect to be paid and they will be – as long as the cash holds out.”

“What about those companies that resell products and solutions? Their agreements with the Government require them to deliver in 30 or 45 days. But, they have no idea when they are going to get paid. Is a day or even a week delay in delayed payments a big deal? It sure is, especially if you are managing $10 million in orders from last week – and operating on 3-5% margin. These Value Added Resellers (VARs) are now torn between original equipment manufacturers (OEMs) and the customers who pay them. How many of those VARs will be forced to close their doors?,” warned Jimenez.

Aside from the obvious elephant in the room, "jobs and the economy", here are some other issues the MicroTech CEO is highlighting:

  1. For every day the Government is closed expect it to take two days for them to get back into the swing and get things running like they were before the shutdown (one week out = two weeks to get back to normal)!
  2. The companies that have taken care of their people and figured out how to survive will have either exhausted their cash reserves or have taken on unnecessary debt.
  3. People who work for some of the smaller, more fragile companies and have been put on leave without pay (LWOP) are soon going to have to write a check for their healthcare because they have no salary, so payment for the benefits can’t be taken out of their paycheck. Ironically, the very members of Congress who claim not to like Obamacare, are certainly pushing people in its direction.

Jimenez cautioned, “If the shutdown continues, other dates on the calendar are sure to increase anxiety even more. The market and other entities that affect the market like the earnings reports, jobless claims, and the monthly jobs report are all tools that help America check its health. With the Government shutdown can we count on those to be there – probably not! On top of that Tuesday, October 8th we have earnings reports for the third quarter will begin to come out. In the absence of macroeconomic data, earnings reports by individual companies and sectors we can expect lots of volatility in the markets. But the biggest date bar none is October 17th. That’s the date when we can expect the Federal Government to reach its debt limit. That will ultimately raise the potential of a debt default, an undermining of the full faith and credit of the world’s largest economy, which will undoubtedly uncork a cloud of economic chaos and if the debt limit is not raised, and America is forced into default, what happens then is hard to predict”.