Q&A with Jeff Stibel: What small business owners need to know about the fiscal cliff

By John Peabody
November 14, 2012

With the so-called fiscal cliff looming, Reuters Small Business interviewed Jeff Stibel, chairman and CEO of small business credit rating agency Dun & Bradstreet Credibility Corp to ask him a few questions about what small businesses need to know about the government’s self-imposed tax agreement deadline and what small businesses can do in case congress fails to ink a tax agreement plan before the end of the year.  

Reuters: First off, can you define fiscal cliff for us?

Jeff Stibel: The U.S. Congress and President Obama created the “fiscal cliff” last year as they negotiated ways to lift the federal debt ceiling. The cliff causes two things to happen at midnight on December 31, 2012. First, a range of temporary tax cuts will expire as the Budget Control Act of 2011 goes into full effect. For American small businesses, this will mean the end of several key tax breaks and the imposition of new taxes. Secondly, mandatory budget cuts will be imposed at the federal level. The result has the U.S. economy – and, with it, U.S. businesses – hurdling towards its own cliff.

Reuters: I think a lot of people are aware of the fiscal cliff and its impact on taxes. What impact would it have on small businesses? And what do small businesses need to know about the fiscal cliff?

Stibel: Falling off the fiscal cliff could produce a recession and significantly contract credit markets, which would put additional strain on business owners. Banks cling to cash at any sign of instability. The fiscal cliff is creating that uncertainty, evidenced by steep market declines last week. It’s unfortunate that credit markets could tighten, since many small businesses can’t access capital. A recent study from Pepperdine University’s Graziadio School of Business and Management and Dun & Bradstreet Credibility Corp. discovered only a third of small businesses who sought loans actually secured them, a reminder that market conditions are already tough and getting tougher. We also expect to see consumer spending lag, as consumers may end up paying higher taxes, money a consumer might otherwise use for retail. The most important thing for small businesses is certainty – they need to know what they’re dealing with so they can make long-term decisions.

Reuters: What sort of, if any, small businesses will be initially impacted and/or impacted the most should the government fail to come to a compromise?

Stibel: The fiscal cliff is an across-the-board cut that will impact job creation and employment throughout the economy. Of course businesses that support federal contractors will feel the pain – but so will small businesses in the retail, travel and other sectors. Big corporations and small businesses alike will lower expectations for sales, investment and employment in the event of a jump off the fiscal cliff.

Reuters: Is there anything small businesses can do to prepare for the fiscal cliff? What would you advise small business owners to do right now?

Stibel: This is a great time for small business owners to clean up balance sheets, pay down debts and consider taking new loans. This is also a great opportunity for small businesses to make sure they’re caught up on bills and that they’ve checked their credit scores. These are vital indicators of health and, if the economy destabilizes, businesses can be sure that banks and other lenders will only want to do business with the most responsible, credit-worthy businesses.

Image: Handout courtesy of Jeff Stibel. 

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