Spending review will mean more small to medium sized companies in administration

Accounting firms and restructuring experts, including KPMG, are predicting a surge in small to medium sized companies falling into administration as a result of the knock-on effect following government spending cuts.

What is expected to happen is that the government will set up centralised procurement teams that will adopt a supermarket-style buying approach. This will undoubtedly favour larger suppliers who have the capacity for larger orders and the ability to shave prices down. These larger firms will see benefit in merging with each other or buying up smaller, specialist companies. Consolidation is inevitable.

The warning is plain for smaller companies who have government contracts or who subcontract to firms with public sector contracts: start putting cash away, cut your costs and look to expand your customer base. According to KPMG, at most risk are companies in the property and business support sectors. If there is a discretionary element to the demand for a firm’s products or services, then particular care should be taken.

According to R3, the insolvency trade body, a huge 30 per cent of small businesses say they are either ‘reliant’ or ‘fairly reliant’ on government contracts. 10 per cent of small businesses are worried that they may actually fall into in an insolvent situation if they were to lose their public sector contracts. R3 predict that the latest wave of government spending cuts will put nearly 150,000 small businesses in grave risk of insolvency.

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