Fallout begins from public spending cuts

News Article - 02 September 2010
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According to accountants Wilkins Kennedy, public sector suppliers are already suffering financially as a result of public spending cuts introduced by the Government. Delayed contracts are identified as the biggest obstacle facing affected firms.

Despite a 5% drop in insolvencies in 2010, the number of insolvencies amongst defence, health and social services, and education suppliers to the public sector climbed to 168 in the first six months of this year - an increase of 57 from the same period last year. This is despite the fact cost cutting is still in its infancy.

Supplying to the public sector has been traditionally seen as safe business, but the economic downturn and the measures required for economic recovery mean this is no longer the case. The increase in cost cutting is likely to hit firms hard that supply to the public sector. Many will have accrued higher costs due to the steadiness and reliability of Government contracts.

Profit margins will inevitably get squeezed following the switch to less lucrative private sector contracts. This could add to the number of insolvencies currently experienced by firms that make a substantial proportion of revenue from the public sector.

Businesses in supply chains with contracts to any public sector entities may soon suffer from reduced revenue as contracts dry up as a result of spending cuts. This could seriously impact cashflow, as many companies still struggle to gain and maintain pre-recession levels of liquidity. Businesses must maximise returns from existing contracts to ensure cashflow remains stable if public sector contracts are renounced.

Access accounting software can help monitor the situation and take decisive action: cost reporting, for example, can ensure all costs are accounted for. By including all outgoings in regular financial reports, businesses always have access to transparent financial data that gives an accurate picture of current liquidity levels. This helps prevent costs going over-budget, which can quickly cause problems for firms when demand dies down or contracts are lost.

For more information on the benefits of Access accounting software, please call us on 0845 345 3300.

Article keywords: public spending cuts, the economy, recovery, business news, industry news, access group, business software, cost reporting

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