In a survey of the Federation of Small Businesses members in the construction sector, 43% said their trade had decreased and 54% said the cost of running their business had increased.
Things have improved over the past year. In a survey of the same panel in May, six in 10 said trade had decreased and 55% saw a rise in the cost of operating their businesses in the previous six months.
Of the 100 respondents in the survey, one-third said they were worried about their business prospects over the next six months and that late payments from bigger companies were stifling their cashflow. More worrying is that 54% said they had experienced an increase in the number of companies paying late.
John Wright, national chairman at the Federation of Small Businesses, said: "The construction industry is one of the sectors that has been hardest hit during the recession as people have been cutting back on developing new properties or refurbishing their homes.
“Cashflow is vital for the survival of a small business and the lethal cocktail of a continued decrease in trade and increase in costs could have a devastating impact on the sector.
"As we approach the New Year, small businesses in the construction industry and builders need to be the best position possible if they are to survive. Lowering the VAT to a flat rate of 5% on home renovation projects will encourage people to spend their money and give a crucial kick-start to the construction industry."