What Can You Expect From Governmental Budget Cuts?

When the government almost shut down due to disagreement over the federal budget many industries began to shake in their boots. On April 14th the government finally passed a federal budget complete with a $39 billion cut in governmental spending. So what should you expect to see as a result of these cuts?

In years past the government has been many companies’ biggest customer. One industry heavily affected by cuts in government spending is defense contracting. Many defense contractors get up to 90% of their business from the US military. As a result of the most recent budget cuts, many defense contractors are drastically altering their business plan. They are vastly reducing their earning projections and many companies are separating different departments in order to minimize the harm done to them by these spending cuts. In short they are prepared for the worst, a tactic many companies should probably adopt.

While the economy is very slowly beginning to recover from the economic crash in 2008, the loss of $39 billion from the market is sure to slow the recovery for some industries. The affected companies stocks are bound to drop and employment rates within those industries are bound to follow. This means that there may be a dip in the overall economy.

This is of course not the first time companies are having to adjust from less governmental funding. State budgets have been tightened in most every state, which has caused federal and state employees to grow accustomed to pay cuts and furlough days. Public Universities have had to drastically increase tuition fees in order to stay afloat and the amount of federal aid available to students through Pell grants and other forms of scholarship have all but disappeared. Primary education has also undergone drastic cuts and many districts have had to cut schools and drastically increase classroom sizes. These cuts have been bared by most every publicly funded institution and it is only natural that private industries supported by the government will also be affected.

President Obama recently went on tour explaining the spending cuts and the end of many tax breaks. Both parties are arguing for a ‘leaner’ government which is required to bridge the deficit currently plaguing the United States. Where the cuts are to come from is of course controversial. In order to cope company’s who rely on governmental funding are going to have to cut production costs as much as possible and may need to look to outside sources for assistance. The key to surviving these cuts is to face them prepared.

This article is not meant to serve as a criticism or praise of the federal government’s recent budget, it is meant as a helpful warning that many industries are sure to face trying times. The good news is that the overall economy seems to be improving each month and that many organizations have already adjusted for changes in governmental funding. Hopefully if your industry is heavily affected by the budget cuts, there will be enough flexibility within your business plan to prevent too much loss. Regardless, the cuts are coming and only those prepared for them will come out ahead.