Small-biz expert: Beware fiscal cliff

Posted: December 28, 2012

D ANE STANGLER has never owned a small business, and doesn't expect to. But as director of research and policy at the Ewing Marion Kaufmann Foundation, in Kansas City, he's familiar with the issues that entrepreneurs and small businesses face. Part of the foundation's mission is to foster entrepreneurship through grants and research.

Q: How important is government policy for small-business owners?

A: Policy impacts at the margins, but for most entrepreneurs and business owners, their top concern is customer demand, because consumer spending is still making its way back. Policy is very important, but getting sales, getting customers, running your business, dealing with employees probably still dominate the daily thinking of a lot of business owners. Policy obviously impacts that, but not always centrally.

Q: What is the biggest issue with the fiscal cliff?

A: The fiscal cliff is not only about the tax code. It's just the uncertainty. If we do go over the cliff, we're going to get whipsawed because the Internal Revenue Service is preparing for the government going over the cliff, putting in place all the new tax forms, and then, six weeks later, when they reach a deal, we're going back to the way things were.

Q: Is there any long-term damage done to small business by this kind of situation?

A: Probably very few people, especially among the community of entrepreneurs and business owners and potential entrepreneurs, would bet against the long-term strength of the U.S. economy. That is borne out by the fact that we continue to see a strong level of entrepreneurial activity - people starting business. That act is itself a signal of optimism and confidence in the U.S. and its long-term growth.

Q: No matter how the cliff is resolved, it's expected that eventually, there will be billions of dollars in cuts to the federal budget. What will be the impact on small business?

A: Inc. magazine every year does a list of the fastest-growing companies. Government services dominated the list in the last decade. If a substantial [amount] of that is cut, you'll have a massive effect not just on small businesses, but on innovative, fast-growing companies. History shows that government spending, whether it was through contracts or through research grants or whatever, has played a very important role in innovation and economic growth.

Q: What chance does a young company have to sell a product or service to the government in this climate?

A: There are still government programs that mandate that a certain percentage of government contracts have to be given to small business. Those percentages are probably not going to go away. But it does mean the dollar amount probably declines. It's not just a federal issue. State-government budgets have been seriously affected the last few years.

Q: Is this a good time or a bad time to start a company?

A: My view is that it's never a bad time to start a company. There are good cases to be made that starting in an economic expansion is great because consumer demand is high and people will spend money. There's arguments to be made that starting in a downturn, whether it's a recession or a bear market or a sluggish recovery, is also a good time. If you're a tech startup, for example, the demand for technology has been pretty constant the last few years.

Q: Is it going to be harder to be a small-business owner and expand your company in the next five to 10 years?

A: Yes, in some sectors. Take retail. There's the Wal-Mart effect: You've seen huge consolidation in retail. You've seen a huge consolidation in the information-technology sector. We've sort of entered a "you-eat-or-be-eaten" atmosphere. Investment banks and especially the [stock] markets in the retail and information-technology sectors simply aren't welcoming anymore toward small, innovative companies. You either have to get big fast by being an acquirer or you have to be acquired.

Q: Are you saying that the climate for small business is more hostile than it was?

A: Not necessarily. In certain sectors - Internet, digital media, software - there has never been a better time to start a company. The supply of venture capital is outstandingly high.

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