We've avoided economic Armageddon, but the recovery will be long, slow and painful. The hard work starts here...

After an uncertain year, we face the most fundamental change in the business environment ever known. The period of plenty is over and a sustained era of austerity is here.

At last, politicians seem to have woken up to this fact and share the view the rest of us reached nine months ago that there is a need for public expenditure cuts combined with tax rises. Most of us also recognise that business life will remain tough for a long time despite talk of "green shoots". We won't return to business as usual in a hurry and we have to adjust to what this means.

The impact of greater political involvement in the economy, both through bank ownership and a massive public sector, doesn't fill many of us with hope. It won't help us get out of our problems more quickly or less painfully. Anyone who has been involved with downsizing a government operation can tell you that. The redundancy, pension, and pay-off costs are significant and even as it becomes smaller, the public sector will still wreak havoc on the public purse. Add to this the inevitable strikes that will unfold and it is easy to see how a nascent recovery could be squashed at birth.

As entrepreneurs and directors, we face a future where our expertise has never been more critical. Higher taxation, savage cuts in public provision, unprecedented debt levels and increased government interference are not ingredients we would choose to help us revive the economy, but we will do our best. We must grab opportunities and resources to produce more than the sum of the parts. This value creation is the surplus from which all taxation ultimately springs.

But with an ageing population and a slowdown in immigration our effective labour pool is going to dwindle. Add to this the general shift in wealth from west to east, our compulsion in bringing the City to its knees through a sector-specific incomes policy on the money men, and it seems clear that the free capital at our disposal will also reduce as it migrates to more welcoming economies.

It is essential to forget outdated instincts. Some smart people continued to believe for a long time that the world was flat, that flight travel was impossible, and that there was no market for handheld music devices. But we don't have the time for such big errors of judgment.

During the good times, we focused on the pursuit of growth, on market share and on dominating particular markets. The answer to the question of "how big is your company?" has long been the turnover figure, or the employee headcount, rarely the net profit, and never the cashflow. Placing market share aspirations above profitability and cashflow is a habit that is going to be tough to shake. But the efficiency with which you put cash to work is what will give you an edge.

While Britain appears to have avoided economic Armageddon, it faces years of economic misery and the dawn of a long, slow and painful recovery. And that revival will be held back by high levels of private and public debt, an over-tightening of regulation, too much involvement of politicians in the economy, and the demographic time bomb that means the UK already has more people aged over 60 than it has under 15. On the plus side, austerity conditions will feed a frugality that should make us hungry enough to work smarter and to win in the modern gladiatorial contest that is business.

Alex Pratt is author of Austerity Business (Wiley) and founder of www.seriousreaders.com