Pictured above: Roy Botterill

Severe public sector cutbacks look set to cause acute private sector cash-flow problems for many businesses, warns Harvey Ingram corporate and insolvency specialist Roy Botterill.

Thousands of companies' turnover is directly and indirectly underpinned by public sector spending, public sector sub-contracting and public sector employment. But likely budgetary cutbacks imposed following the Coalition Government's forthcoming Spending Review, could tip many struggling private sector companies into insolvency.

Roy Botterill, a partner with Harvey Ingram, has been following developments closely.

He says: "Taking the axe to public sector spending has the potential to leave some businesses reeling. Many companies are already working to incredibly tight margins, have acute cash-flow challenges and are being closely watched by their banks. To remove a principal source of income at relatively short notice could tip the balance.

"It's a matter of timescales. The gap created when cash is taken from the public sector purse won't simply be filled by the private sector. Entire sectors of industry have to recalibrate, renegotiate contracts, re-employ and where necessary re-skill. It takes time and it takes effort. With fewer opportunities available, margins will be cut even further and some companies will simply go to the wall."   

The results of the Coalition Government's Spending Review will be announced in October, when it will be revealed which departments and which sectors will see their budgets cut and by how much. It has also recently emerged that new research suggests the Midlands is likely to be among the least resilient regions to wide scale public sector cut-backs in the UK.

Botterill is urging businesses which are heavily reliant on public sector contracts to consider the steps that can be taken to safeguard their positions.

But he adds: "It's not all doom and gloom. Cash-savvy entrepreneurs and business owners can get ahead of the game before the real impact of the Spending Review starts to bite by starting scrutinising their options now.

"Among the possibilities is reconstruction, the separation of assets to allow the preservation or sale of parts of a business, diversification into more profitable areas and the independent development and management of different businesses, a review of funding lines and a look at innovative security steps.

"Now is the time to start planning. Any business with sizeable public sector contracts needs to start looking at everything from contracts, inter-group guarantees, valuations, employees, pensions, secured lenders to creditors. It's going to be a tough few months, there's bound to be casualties, but crucially, with a bit of work now most can survive."

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