December 06, 2012 By Aaron Stern
It’s that time when businesses budget for the coming year. This year that task is more challenging than ever.
That’s because no 2013 financial strategy is complete without a contingency plan for the looming fiscal cliff - the $600 billion package of tax hikes and government spending cuts that will kick in on Jan. 1 if Democrats and Republicans in Congress are unable to strike a deal to avoid it.
Integrators could be hit hard if their clients are forced to delay or abandon previously planned projects. Cathy Mrosko, director of government affairs and industry outreach for the National Systems Contractors Association says that integrators and clients alike are taking a “wait and see” approach.
“Everybody is in a state of ‘I don’t know what to do,’” she says.
“It’s definitely having an impact,” says Bill Craig, VP of business development for Logic Integration in Lone Tree, Colo. “For clients that are considering starting projects, everything is on hold until the first of the year.”
While the implications of the fiscal cliff would likely extend to all market sectors, integrators who work with the government or whose clients rely on government funding could feel the heat first, but few will be spared if tax hikes force other industries to pull back.
Related: 5 Business Lessons from the Fiscal Cliff by Daniel Newman
“The cliff has to do more than anything with government spending; [but it also] has everybody even in non-government industries just staring,” says Bruce Kaufmann, CEO of Human Circuit in Gaithersburg, Md.
As always, sustained drops in business will require integrators to cut their own costs.
“[U]ltimately, your biggest expense is payroll,” says Tom Berry, Jr. of Moutainside, N.J..-based Verrex. “You’ve got to look at payroll, and also where you pursue that business. If the U.S. develops a position where it’s tough to do business, then it drives business owners outside the United States.”
But cutting costs won’t just be about staffing. NSCA executive director Chuck Wilson says integrators are already looking at what the potential changes to the tax code could mean from an ownership standpoint and how they can minimize their tax burdens for next year.
“‘[Do] I write off a lot of inventory like I usually do?,’” he asks. “‘Do I do that in 2012 or do I carry forward that higher amount of excess inventory this year so I can harvest those losses next year? But then again the Republicans are looking to close up those types of loopholes. The real estate that I [theoretically] own, do I get rid of it this year because they’re closing up loopholes?’ So it’s kind of cool that our members are thinking so strategically about the ownership of the companies.”
Some integrators interviewed for this story said they aren’t overly worried about the fiscal cliff and that they assume a compromise will be reached to avert it. But many aren’t so sure, and the implications of a potential political failure shouldn’t be underestimated, says Berry.
“I think ultimately our hands, our fates are with the politicians,” he says. “And as long as Washington continues to be divided across party lines that does not benefit in any way shape or form my business, which is a small business, or our industry.”