Obama’s 2015 Budget to Sidestep Bipartisan Offers

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Obama’s 2015 Budget to Sidestep Bipartisan Offers

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You're the Boss Blog: Business Owners Confront the Budget Impasse

Portraits of women entrepreneurs.

At the most recent meeting of the She Owns It business group, the conversation focused on the end of the payroll tax holiday, the impact of the federal budget impasse, and the challenges of implementing new technology.

Jessica Johnson, who owns Johnson Security Bureau, said many of her employees didn’t realize their paychecks would be 2 percent smaller when the payroll tax holiday ended in January 2013. As soon as they got their first checks of the year, the complaints began, she said.

“You’re taking my money!” they told her.

“No, we’re not taking your money, we’re withholding the proper payroll taxes according to the federal government,” she responded. “I would love to have a check for all that two percent that I’m withholding.”

“That’s funny, I haven’t had anyone say anything, and I know it affects people,” said Susan Parker, who owns Bari Jay.

Ms. Johnson is also thinking about the March 1 deadline for the federal government to agree on a budget, and how any decisions — or lack thereof — will affect her business. Cuts in government spending are a likely part of any plan, she said. “If the federal government doesn’t have the money,” she said, “then money won’t trickle down to the state level, which will mean that state and other municipal contracts that I have might be impacted.”

Beth Shaw, who owns YogaFit, asked what percentage of Ms. Johnson’s business these contracts represent.

“Less than 50 percent,” Ms. Johnson said.

“So, still significant,” Ms. Shaw said.

“Still significant,” Ms. Johnson agreed. But she added that her greater concern is the way in which cuts to various government programs, such as Section 8, the federally funded housing subsidy program, may affect her employees. “If somebody doesn’t get their Section 8 voucher, then will that mean I have homeless employees? And if you’re homeless, how can I expect you to go to work?” she asked.

“But there’s nothing you can really do about it,” Ms. Parker said. “First of all, you’re speculating as to what’s going to happen.”

“That’s true,” Ms. Johnson said.

“And second of all, even if that is ultimately what happens, what can you do to change it?” Ms. Parker asked.

“That’s a very valid point,” Ms. Johnson said.

“I feel like I’m throwing the towel in, but I don’t know what proactively you could do,” Ms. Parker said.

In the meantime, Ms. Parker is preoccupied with the new software her company has been trying to implement for more than a year. The customized Web-based software will run all of Bari Jay’s operations, including invoicing and order entry. Ms. Parker said she paid the software design firm $36,000 during the early stages of the project, and “tens of thousands on top of that for data conversion.” Additionally, beginning in November, when the software design firm began testing the system with Bari Jay’s live data — like the actual number of dresses it will produce — Ms. Parker has been paying a monthly fee of $2,000.

“It’s so frustrating I don’t even know where to begin,” she said. “I was supposed to be on this software a year and change ago.” The software design firm initially thought the job would take three months. Finally, they are close to “going live,” Ms. Parker said. She thinks that should happen within a month. But, she said, “I know once we’re live, a whole new slew of problems are going to come about.”

Deirdre Lord, who owns the Megawatt Hour, agreed there will be challenges.

“How do you implement something new or make a major change and have the course of business continue?” Ms. Parker asked. “It doesn’t have to be a new software system, it could be any major change.” Further complicating matters, the changeover will now have to take place during her busiest time of year.

“Can you run the two systems in parallel for a period of time?” Ms. Lord asked.

Ms. Parker said the systems were running in parallel now as the new one is tested , but once the new one goes live, the old one will shut down. The group also wondered what, exactly, has caused the delays.

Ms. Parker explained that when she began the process she spoke with multiple software companies — all of which assured her they handled work for garment companies. “But the bridesmaid business is so different from almost any other garment company out there,” she said. For example, her dresses are made to order — a dress may come in three different colors and the customer can choose whichever she wants.

“How many S.K.U.‘s” — or products for sale — “do you have?” asked Ms. Shaw.

“I couldn’t even tell you,” Ms. Parker said. A dress may have three different colors, and a customer might have 30 colors from which to choose, she said. “I mean what’s 30 times 30 times 30?” she asked. And that’s just one style out of hundreds.

Most garment industry software systems run on S.K.U. numbers, Ms. Parker explained. Because Bari Jay has so many, the programs tend to crash. The good news is that her new system hasn’t been crashing while on trial.

But that was just one challenge. Other issues arose from the high level of customization her business required. With the exception of bookkeeping, everything had to be tailored, including accounts payable and accounts receivable.

Ms. Lord said Ms. Parker should prioritize the issues her software company must address, and give it a time frame for each.

Ms. Parker said invoicing, production, and order entry were the most critical functions. If those work, Bari Jay can deal with other issues. At the moment, she said, order entry works, production works, and invoicing “mostly works.”

Again, Ms. Lord said, “You need to create some way of prioritizing problems around the business issues so they can be responsive.”

“I understand what you’re saying,” Ms. Parker said.

“You need almost a service-level agreement that commits them contractually to solving certain problems in a certain priority order,” Ms. Lord said.

“So, if it’s a production or an invoice thing, they have to do it immediately, whereas if it’s something else they can get to it whenever,” Ms. Parker said.

“And then there’s a penalty associated with missing those goals,” Ms. Lord said.

“I actually really like that idea,” Ms. Parker said.

While Ms. Parker can’t rewrite the agreement at this stage, she knows the software company is eager to get her new system up and running. Doing so will enable it to pursue other clients in the bridal industry. “I could say, ‘You want to go live? Well this is what I need from you,’ and I think I might get them to agree to it,” she said.

You can follow Adriana Gardella on Twitter.

You're the Boss Blog: Many Expect Budget Cuts to Hit Small Businesses Hard (But Not the N.F.I.B.)

How small-business issues are shaping politics and policy.

Economists have been warning for months that if the $85 billion in indiscriminate budget cuts known as the sequester take effect, the consequences for the economy could be dire. But for small businesses, the prospects may be even worse.

“Government spending is at 8 percent of gross domestic product, and at a time like this, when the private sector is still climbing off the mat, the last thing you need is for the public sector to pull out,” said Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities and formerly the chief economic adviser to Vice President Joseph R. Biden. “So nonpartisan analysts predict that if the sequester takes hold, it will lower the growth rate of G.D.P. by half a percent. And that translates to an unemployment stuck at 8 percent and hundreds of thousands of fewer jobs.”

Small businesses, Mr. Bernstein added, will bear the brunt of it. “Smaller businesses tend to be more locally dependent,” he said. “They tend not to be multinationals. If you’re a multinational and the economy is not doing well here, you shop around the globe for economies that are doing a lot better.” Moreover, he said, “a lot of small businesses don’t have the access to credit markets, so it’s tougher for them to get through periods of a down economy.”

According to Stephen Fuller, a professor at George Mason University’s School of Public Policy, the budget cuts required by sequestration amount to $35 billion in payroll costs and about $50 billion in procurement expenses. All told, Mr. Fuller said, these cuts would result in 1.4 million lost private-sector jobs. Those lost jobs include positions at federal contractors, as well as at businesses that serve those contractors and, even less directly, at the businesses that depend on spending by government and contractor employees.

Small businesses, Mr. Fuller said, would lose just over half of those jobs.

“So many of these small businesses don’t realize how dependent they are to the federal government because they’re not the contractors — they are suppliers and vendors to the contractors,” said Mr. Fuller, who testified (pdf) at a House Small Business Committee hearing last September on the effect of sequester. “They’re the ones who water the plants and secure the buildings.” Small businesses will suffer from the reduced federal and private sector payroll because of the important role they play in the consumer economy, as retailers and restaurants. “However you allocate the consumer budget across the economy, there’s a large number of small businesses,” Mr. Fuller said.

Small businesses that deal directly with the federal government would fare even worse. According to the Small Business Administration, small businesses received $91 billion in prime federal contracts in 2011, or just under 22 percent of the total contracts available to small companies.* However, according to Mr. Fuller’s calculations, small companies would account for about 34 percent of the job losses at prime contractors under the sequester. (Since Mr. Fuller’s testimony, Congress reduced the amount of the sequester as part of the New Year’s fiscal cliff legislation. While the overall job losses would be lower as a result, Mr. Fuller said the share coming from small businesses would likely change only slightly.)

Small businesses “can’t survive on the loss of 10 or 20 or 30 percent of their revenues,” he said. “They can’t continue operating at half-speed or two-thirds speed. They don’t have a cushion that a large publicly traded company would have.” Large federal contractors can shift employees across business lines — most have both civilian and federal divisions — and geography. Small companies that specialize “can’t learn new tricks that quickly.”

Officials in the Obama administration, asked to comment on how small businesses could be affected by cuts to federal procurement, declined to be specific. “Should sequestration occur, small businesses, like other business, will be impacted as agencies are forced to allow certain contracts to lapse and de-scope, or terminate other contracts that would be no longer affordable,” said an Obama administration spokesman who asked that his name not be published. The spokesman would not say whether government agencies would attempt to stretch out payments to vendors in order to make the money last longer. For example, in September 2011, the administration announced its so-called QuickPay program, which attempted to cut the government’s payment time to small companies from 30 days to 15 days. The spokesman did not say whether the administration would continue this initiative.

However, Mr. Fuller said agencies would not likely cancel existing contracts, since the money for these has already been appropriated. Rather, he said, agencies would probably not extend some of those contracts or issue new ones. Because of the way the federal government spends money — purchasing is typically concentrated in the last three months of the fiscal year, which ends in October — the impact of the sequester would most likely be felt beginning in July.

The sequester would also scale back programs at the S.B.A. According to the administration, loan guarantees would be reduced by $902 million, from $22 billion to just over $21 billion. And the agency told (pdf) the Senate Appropriations Committee that cuts to its counseling programs would force the agency’s partners to turn away at least 33,000 business owners seeking assistance.

Not everybody was so pessimistic. Holly Wade, a senior policy analyst at the National Federation of Independent Business, said it was impossible to know whether the sequester, should it take effect, would harm the economy. “If the economy contracts overall, that will affect small businesses,” she allowed. But she downplayed the prospect of specific threats to small businesses. “Few small businesses have contracts with the federal government, and few small businesses get loans from the S.B.A.,” she said.

The N.F.I.B., she added, has not taken a position on whether the sequester should go into effect.

You're the Boss Blog: Many Expect Budget Cuts to Hit Small Businesses Hard (But Not the N.F.I.B.)

How small-business issues are shaping politics and policy.

Economists have been warning for months that if the $85 billion in indiscriminate budget cuts known as the sequester take effect, the consequences for the economy could be dire. But for small businesses, the prospects may be even worse.

“Government spending is at 8 percent of gross domestic product, and at a time like this, when the private sector is still climbing off the mat, the last thing you need is for the public sector to pull out,” said Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities and formerly the chief economic adviser to Vice President Joseph R. Biden. “So nonpartisan analysts predict that if the sequester takes hold, it will lower the growth rate of G.D.P. by half a percent. And that translates to an unemployment stuck at 8 percent and hundreds of thousands of fewer jobs.”

Small businesses, Mr. Bernstein added, will bear the brunt of it. “Smaller businesses tend to be more locally dependent,” he said. “They tend not to be multinationals. If you’re a multinational and the economy is not doing well here, you shop around the globe for economies that are doing a lot better.” Moreover, he said, “a lot of small businesses don’t have the access to credit markets, so it’s tougher for them to get through periods of a down economy.”

According to Stephen Fuller, a professor at George Mason University’s School of Public Policy, the budget cuts required by sequestration amount to $35 billion in payroll costs and about $50 billion in procurement expenses. All told, Mr. Fuller said, these cuts would result in 1.4 million lost private-sector jobs. Those lost jobs include positions at federal contractors, as well as at businesses that serve those contractors and, even less directly, at the businesses that depend on spending by government and contractor employees.

Small businesses, Mr. Fuller said, would lose just over half of those jobs.

“So many of these small businesses don’t realize how dependent they are to the federal government because they’re not the contractors — they are suppliers and vendors to the contractors,” said Mr. Fuller, who testified (pdf) at a House Small Business Committee hearing last September on the effect of sequester. “They’re the ones who water the plants and secure the buildings.” Small businesses will suffer from the reduced federal and private sector payroll because of the important role they play in the consumer economy, as retailers and restaurants. “However you allocate the consumer budget across the economy, there’s a large number of small businesses,” Mr. Fuller said.

Small businesses that deal directly with the federal government would fare even worse. According to the Small Business Administration, small businesses received $91 billion in prime federal contracts in 2011, or just under 22 percent of the total contracts available to small companies.* However, according to Mr. Fuller’s calculations, small companies would account for about 34 percent of the job losses at prime contractors under the sequester. (Since Mr. Fuller’s testimony, Congress reduced the amount of the sequester as part of the New Year’s fiscal cliff legislation. While the overall job losses would be lower as a result, Mr. Fuller said the share coming from small businesses would likely change only slightly.)

Small businesses “can’t survive on the loss of 10 or 20 or 30 percent of their revenues,” he said. “They can’t continue operating at half-speed or two-thirds speed. They don’t have a cushion that a large publicly traded company would have.” Large federal contractors can shift employees across business lines — most have both civilian and federal divisions — and geography. Small companies that specialize “can’t learn new tricks that quickly.”

Officials in the Obama administration, asked to comment on how small businesses could be affected by cuts to federal procurement, declined to be specific. “Should sequestration occur, small businesses, like other business, will be impacted as agencies are forced to allow certain contracts to lapse and de-scope, or terminate other contracts that would be no longer affordable,” said an Obama administration spokesman who asked that his name not be published. The spokesman would not say whether government agencies would attempt to stretch out payments to vendors in order to make the money last longer. For example, in September 2011, the administration announced its so-called QuickPay program, which attempted to cut the government’s payment time to small companies from 30 days to 15 days. The spokesman did not say whether the administration would continue this initiative.

However, Mr. Fuller said agencies would not likely cancel existing contracts, since the money for these has already been appropriated. Rather, he said, agencies would probably not extend some of those contracts or issue new ones. Because of the way the federal government spends money — purchasing is typically concentrated in the last three months of the fiscal year, which ends in October — the impact of the sequester would most likely be felt beginning in July.

The sequester would also scale back programs at the S.B.A. According to the administration, loan guarantees would be reduced by $902 million, from $22 billion to just over $21 billion. And the agency told (pdf) the Senate Appropriations Committee that cuts to its counseling programs would force the agency’s partners to turn away at least 33,000 business owners seeking assistance.

Not everybody was so pessimistic. Holly Wade, a senior policy analyst at the National Federation of Independent Business, said it was impossible to know whether the sequester, should it take effect, would harm the economy. “If the economy contracts overall, that will affect small businesses,” she allowed. But she downplayed the prospect of specific threats to small businesses. “Few small businesses have contracts with the federal government, and few small businesses get loans from the S.B.A.,” she said.

The N.F.I.B., she added, has not taken a position on whether the sequester should go into effect.

You're the Boss Blog: Business Owners Confront the Budget Impasse

Portraits of women entrepreneurs.

At the most recent meeting of the She Owns It business group, the conversation focused on the end of the payroll tax holiday, the impact of the federal budget impasse, and the challenges of implementing new technology.

Jessica Johnson, who owns Johnson Security Bureau, said many of her employees didn’t realize their paychecks would be 2 percent smaller when the payroll tax holiday ended in January 2013. As soon as they got their first checks of the year, the complaints began, she said.

“You’re taking my money!” they told her.

“No, we’re not taking your money, we’re withholding the proper payroll taxes according to the federal government,” she responded. “I would love to have a check for all that two percent that I’m withholding.”

“That’s funny, I haven’t had anyone say anything, and I know it affects people,” said Susan Parker, who owns Bari Jay.

Ms. Johnson is also thinking about the March 1 deadline for the federal government to agree on a budget, and how any decisions — or lack thereof — will affect her business. Cuts in government spending are a likely part of any plan, she said. “If the federal government doesn’t have the money,” she said, “then money won’t trickle down to the state level, which will mean that state and other municipal contracts that I have might be impacted.”

Beth Shaw, who owns YogaFit, asked what percentage of Ms. Johnson’s business these contracts represent.

“Less than 50 percent,” Ms. Johnson said.

“So, still significant,” Ms. Shaw said.

“Still significant,” Ms. Johnson agreed. But she added that her greater concern is the way in which cuts to various government programs, such as Section 8, the federally funded housing subsidy program, may affect her employees. “If somebody doesn’t get their Section 8 voucher, then will that mean I have homeless employees? And if you’re homeless, how can I expect you to go to work?” she asked.

“But there’s nothing you can really do about it,” Ms. Parker said. “First of all, you’re speculating as to what’s going to happen.”

“That’s true,” Ms. Johnson said.

“And second of all, even if that is ultimately what happens, what can you do to change it?” Ms. Parker asked.

“That’s a very valid point,” Ms. Johnson said.

“I feel like I’m throwing the towel in, but I don’t know what proactively you could do,” Ms. Parker said.

In the meantime, Ms. Parker is preoccupied with the new software her company has been trying to implement for more than a year. The customized Web-based software will run all of Bari Jay’s operations, including invoicing and order entry. Ms. Parker said she paid the software design firm $36,000 during the early stages of the project, and “tens of thousands on top of that for data conversion.” Additionally, beginning in November, when the software design firm began testing the system with Bari Jay’s live data — like the actual number of dresses it will produce — Ms. Parker has been paying a monthly fee of $2,000.

“It’s so frustrating I don’t even know where to begin,” she said. “I was supposed to be on this software a year and change ago.” The software design firm initially thought the job would take three months. Finally, they are close to “going live,” Ms. Parker said. She thinks that should happen within a month. But, she said, “I know once we’re live, a whole new slew of problems are going to come about.”

Deirdre Lord, who owns the Megawatt Hour, agreed there will be challenges.

“How do you implement something new or make a major change and have the course of business continue?” Ms. Parker asked. “It doesn’t have to be a new software system, it could be any major change.” Further complicating matters, the changeover will now have to take place during her busiest time of year.

“Can you run the two systems in parallel for a period of time?” Ms. Lord asked.

Ms. Parker said the systems were running in parallel now as the new one is tested , but once the new one goes live, the old one will shut down. The group also wondered what, exactly, has caused the delays.

Ms. Parker explained that when she began the process she spoke with multiple software companies — all of which assured her they handled work for garment companies. “But the bridesmaid business is so different from almost any other garment company out there,” she said. For example, her dresses are made to order — a dress may come in three different colors and the customer can choose whichever she wants.

“How many S.K.U.‘s” — or products for sale — “do you have?” asked Ms. Shaw.

“I couldn’t even tell you,” Ms. Parker said. A dress may have three different colors, and a customer might have 30 colors from which to choose, she said. “I mean what’s 30 times 30 times 30?” she asked. And that’s just one style out of hundreds.

Most garment industry software systems run on S.K.U. numbers, Ms. Parker explained. Because Bari Jay has so many, the programs tend to crash. The good news is that her new system hasn’t been crashing while on trial.

But that was just one challenge. Other issues arose from the high level of customization her business required. With the exception of bookkeeping, everything had to be tailored, including accounts payable and accounts receivable.

Ms. Lord said Ms. Parker should prioritize the issues her software company must address, and give it a time frame for each.

Ms. Parker said invoicing, production, and order entry were the most critical functions. If those work, Bari Jay can deal with other issues. At the moment, she said, order entry works, production works, and invoicing “mostly works.”

Again, Ms. Lord said, “You need to create some way of prioritizing problems around the business issues so they can be responsive.”

“I understand what you’re saying,” Ms. Parker said.

“You need almost a service-level agreement that commits them contractually to solving certain problems in a certain priority order,” Ms. Lord said.

“So, if it’s a production or an invoice thing, they have to do it immediately, whereas if it’s something else they can get to it whenever,” Ms. Parker said.

“And then there’s a penalty associated with missing those goals,” Ms. Lord said.

“I actually really like that idea,” Ms. Parker said.

While Ms. Parker can’t rewrite the agreement at this stage, she knows the software company is eager to get her new system up and running. Doing so will enable it to pursue other clients in the bridal industry. “I could say, ‘You want to go live? Well this is what I need from you,’ and I think I might get them to agree to it,” she said.

You can follow Adriana Gardella on Twitter.