With £6.2bn worth of public sector spending reductions already announced, including a £160m cut in the COI's ad spend, and further cuts expected in next week's emergency Budget, companies are being urged to prepare for the worst.
Clive Lewis, head of enterprise at the Institute of Chartered Accountants in England & Wales (ICAEW), said: "These cuts are inevitable and businesses will have to accept them.
"There are actions that can be taken though, which can soften the blow and ensure that it will not mean that a company will go out of business."
The ICAEW has called on public sector contract holders to check when their contracts are due to end and whether there are any penalties for either side if it is terminated prematurely.
It has also recommended speaking to the local or central government department that controls the contract to find out if they are likely to face a reduction in budgets and, if so, when.
Businesses are also advised to look at diversifying their offering to local government and reviewing their costs to see if any savings can be passed on if it comes to a contract re-negotiation.
"The key is to be flexible and not to panic if cuts affect your business," said Lewis. "[But] for businesses that have made it through the recession there are still tough times ahead."
ICAEW's warning came as the OBR downgraded Labour's growth forecasts for 2010/11 from 3.25% to 2.6%, and from 3.5% to 2.8% for 2011/12 and 2012/13.
Potentially of more concern was the increase in the UK's structural deficit, which is immune to the economic cycle and which the OBR said would hit 8.8% of GDP this year.
Lewis said: "It is clear that there are some deep seated problems to address in the UK's public finances and it is best to be prepared for this enventuality."
The gloomy economic forecasts, coupled with the sovereign debt crisis in Europe, have set the scene for next week's emergency Budget, in which the chancellor, George Osborne, is expected to announce further cuts together with tax rises.
David Bunker, director of Close Print Finance said: "Osborne is going to deliver one of the biggest budgets of the century. The public sector borrowing requirement (PSBR) was going wrong when Gordon Brown was chancellor; he over-committed public sector borrowing in the 'hope' of future tax receipts that never materialised.
"This set the scene for an upward spiral of public debt - not to mention pawnbroking the nation's gold reserves. My view is that there will be a second big dip which will, on one hand, intend to turn the tide of the PSBR but on the other hand will be very hard felt and last for some considerable time."
