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A new study by insolvency trade body R3 has found that almost 10% (148,000) of small businesses fear they could become insolvent if they lose public sector contracts.

But any businesses largely dependent on the public sector have only themselves to blame if they become insolvent due to the imminent cuts ahead.

Whilst you can be rest assured you’re going to get paid, it’s unfortunate that companies will create a business model solely reliant upon the public sector in the first place.

In our industry, public sector contracts are called ‘low hanging fruit’ because they are easy to pick, and safe when you get them.

But when business dries up and you have nothing else in your profile, you’re bound to collapse like a pack of cards. The bankruptcy of social housing giants Connaught is one recent example.

Businesses that have chosen government dependency to sustain cash flow should be well prepared.

You’ve had at least a year to invigorate your business, diversify and change the profile of your customers. So if you get caught out, that is down to your own negligence.  

If we go back to 2008, when Lehmans Brothers collapsed and the government took on bankers’ debts, it was inevitable the public, and subsequently businesses, would have to pay. 

It’s no secret that if you’re in business, you need to know what’s going on in the wider economy – especially if you’re dependent on public sector contracts.

If you’re dependent on the auto industry, you’d be foolish if you didn’t keep up to date on issues relating to that industry.

Likewise, if you’re dependent on public sector expenditure, which is set to be slashed by 25 to 33%, you must expect your turnover to suffer in similar measures.

Her Majesty’s Treasury has managed to keep a lid on its liability for the past two years, but in 2011 they’re going to feel the pressure.

The public sector market will virtually dry up next year, and in doing so, R3’s research found that of all small businesses:

24% (377,000 businesses) would see their profit reduced if they lost public sector contracts

16% (253,000) would be unable to fund expansion

14% (216,000) would consider job losses

11% (173,000) would be in serious financial trouble

Even if you were slow off the block, it’s not too late to aggressively find new markets.

Act now by contacting Insolvency and Law for free, confidential advice on 020 7504 1300.

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