The news that almost 8,000 IT companies were on Begbies Traynor's red flag alert report in the fourth quarter of 2010 makes for sombre reading, especially when you consider the figure is 9% up year on year and 27% higher than for the third quarter.
Begbies Traynor doesn't pull its punches, pinning most of the blame on public sector cuts deepening the damage on a sector which has already been hurt by the recession.
The most worrying aspect is that the public sector cuts to date have been merely the prelude to major reductions due to take effect from April. If so many small companies are already feeling the effects, it doesn't inspire confidence in how they will cope when the big cuts start happening.
As Nick Hood, partner at Begbies Traynor says: "IT businesses have historically been insulated by public sector spending and fixed term contracts. Given today's public spending pressures these contracts are now coming to an end and being renegotiated. 2011 looks like being a very difficult year for the IT sector."
You can say that again.
The government has pinned its faith on the private sector riding to the rescue and taking up the slack as public sector spending is reduced, but even if that were to occur, there is bound to be a lag between the one ending and the other beginning. A lot of small companies may find themselves falling between that gap.
This was first published in January 2011