While the United States House of Representatives signed a 45-day continuing resolution, which temporarily funds the government while a broader deal is worked out, a shutdown could be on the horizon. In order to prepare, businesses can take action now to ensure they are prepared if there is a government shutdown.
ASSESS GOVERNMENT CONTRACTS, IF APPLICABLE
Government spending is heavily impacted during a shutdown. It is important to consider any government services or contracts a business relies on and research how they could be affected. This could include contracts directly with the company, as well as customers or vendors who rely on government spending that might experience disruption and have a knock-on effect.
Government shutdowns do not impact all spending equally. Areas that might be considered discretionary, such as parks and recreation activities, may see a greater impact than critical infrastructure activities. However, each department will likely see a spectrum of impact. For example, government-provided healthcare will most likely remain accessible, but research could be paused or scaled back significantly.
It is worth researching the government departments that most interact with a specifically business to understand what a shutdown might mean for their operations, people and cash flow and which pockets of activity within a department would be more affected than others.
Equally, socioeconomic pockets that rely on government employees may see the impact of reduced spending and general economic activity before, during and after a shutdown.
CONSIDER CASH FLOW
Any business that relies on government contracts or payments should expect slight or significant delays, depending on the type of business as noted above. In some cases, contracts and payments may be canceled altogether and/or need to be renegotiated. Furthermore, the availability and timing of business loans may be affected by a government shutdown, so reaching out to lending institution(s) to find out further information on how a shutdown affects loans is important. Analyze any cash flow risks and ensure that a financial cushion is in place to weather any temporary storm.
Look back to 2018-19 government shutdown to see how it impacted cashflows. Consider the specific considerations that influenced how those events unfolded and whether those considerations could influence another shutdown in 2023-2024.
KEEP ACTIVE COMMUNICATION
If a business will be disrupted by a government shutdown, leadership should communicate the impacts clearly to employees, vendors, customers and any others who may be affected.
Government shutdowns can be fast-moving, fluid situations, and they can vary in duration and impact. It is essential to pay attention to any updates and adapt preparations as the situation evolves.
A best practice would be to create a rolling 13-week cash flow forecast (which should be standard practice but is an especially important preparation tool during times of disruption). The forecast should include different scenarios reflecting varying levels of severity of disruption.
If you have questions about further preparations your business can take, please contact GHJ’s Advisory Services Practice.
