For small businesses, fiscal cliff’s a big deal

Vince Fudzie, a contractor in Dallas, says he may have to reevaluate his business and find new opportunities if federal contracts get harder to find.
Vince Fudzie, a contractor in Dallas, says he may have to reevaluate his business and find new opportunities if federal contracts get harder to find.(L.M. Otero/Associated Press)

NEW YORK — More than 1,000 miles from Washington, D.C., Marie DeNicola’s small business is already experiencing the consequences of lawmakers’ inability to compromise on the budget.

If Democrats and Republicans don’t come to a consensus soon, billions of dollars in tax increases and budget cuts will take effect Jan. 1. This fiscal cliff is hurting DeNicola’s company, Mainstream Boutique, a Minneapolis chain of 23 franchise stores that sell women’s clothes. DeNicola recently got a painful e-mail from a prospective franchisee who changed her mind about opening a store because of the economic and political uncertainties.

‘‘It was like a punch in the stomach,’’ said DeNicola, who also operates one of the stores. ‘‘It’s a little scary — because of the unknown, small businesses aren’t waiting until January or February to see what happens. People are reacting now.’’


If people have to pay higher taxes, they will probably spend less. Businesses will delay hiring or making investments that could help them expand. Federal budget cuts will put billions in government contracts in jeopardy. Economists and lawmakers warn that without an agreement, the United States could slip back into a recession. And they say small businesses have the most to lose.

DeNicola is also holding off on big moves because of the cliff.

‘‘We’re waiting to see what happens before we decide on hiring. I can’t continue to invest in the business until I know what’s going to happen,’’ she said.

One of the biggest concerns is the pending expiration of the 2 percentage point cut in payroll taxes, which gave consumers more money to spend in 2010 and 2011. If the cut isn’t extended, the government stands to get $95 billion — money consumers won’t be spending. Long-term jobless benefits will also expire, giving people who have been out of work for a long time $26 billion less to spend.


The prospect of consumers spending less troubles Greg Jones, the owner of three Five Guys Burgers and Fries franchises in Florida. Restaurants like his lost business to cheaper options like McDonald’s during the recession. He worries that will happen again. Jones wants to open two more Five Guys restaurants. But if his existing restaurants aren’t profitable enough, he won’t get the money he needs.

A Georgia Institute of Technology professor, Thomas Boston, said the fiscal cliff could do enough damage to small businesses to halt the economic recovery.

‘‘They’re just now recovering, really growing in any kind of significant way since the recession,’’ Boston said. ‘‘The job creation we’ve seen over the last five months, that creation has been located overwhelmingly in small businesses.’’

The stalemate in Washington has kept Arthur Cooper from making big decisions about his Randolph, N.J., Internet marketing company, Optimum7.

‘‘I have to be more defensive in my posture. I have to hire only based on new business that’s already coming in,’’ he said. ‘‘I can’t plan on news business that might happen.’’

One of Cooper’s concerns is the scheduled increase in personal tax rates. He reports business income on his personal tax return. The scheduled tax increases could result in a much higher tax bill.

‘‘Let’s say I’m going to have to pay $30,000 more for next year,” Cooper said. ‘‘That impacts me personally impacts my business.’’

Cooper expects Congress to do what it has done in the past — come up with a stopgap measure and defer significant decisions for six months or more. That would keep him in limbo while he waits to see if lawmakers will eventually agree on taxes and a budget. He’s angry about what’s happening in Washington.


‘‘It’s an embarrassment to the country. It’s an insult to my intelligence,’’ he said.

Small-business owners who rely on federal contracts are worried, too.

Vince Fudzie, chief executive of Triune, a general contracting company in Dallas, has been waiting to find out if he’ll get approval to finish a dormitory project for the Department of Labor.

If no agreement is struck, Fudzie said, he’ll have to reevaluate his business and see if it can find new niches to fill.

In the meantime, he’s frustrated by lawmakers’ inability to reach a deal.

‘‘We elect these seemingly reasonable people to go to Congress and they seem unwilling to get along,’’ he said.