Watford chairman Jimmy Russo has warned that Championship clubs risk financial oblivion unless they adapt to the harsh economic climate.

Russo believes clubs must learn from the mistakes of those such as Charlton and Southampton, who both over-stretched themselves following relegation from the Premier League and are now mired in financial turmoil in League One.

The Hornets, who open their League campaign against Doncaster tomorrow, also struggled to cope with falling out of the top flight.

They announced operating losses of almost £5million last season and have been forced to embark on a series of cost-cutting measures, including player sales.

Russo admits there could be more departures before the transfer window closes on 31 August.

Striker Tamas Priskin is in talks with Ipswich over a £1.75m move, while Tommy Smith and Jobi McAnuff have also been linked with moves away but Russo insists failing to balance the books would result in dire consequences.

"I think virtually the whole of football, certainly in the Championship, has taken a reality check," he said.

"Things are tough for everyone. Chairmen have to look at the bigger picture and if you don't make certain decisions, then you potentially don't have a club or have massive financial problems - you just have to look at what happened to Charlton and Southampton to realise that.

"We don't want to be that, we want to be a thriving club.

"When we were in the Premier League, there were some terrible mistakes made in terms of the finances but we have a new board and we need to stabilise the club now.

"We're smaller than a lot of clubs and we have to cut our cloth accordingly, including selling players in order to survive.

"The alternative is that we could be suffering badly financially or ending up in the third tier of English football, neither of which we want.

"We have to keep paying the wages so providing an offer for a player comes in which is right and is agreed by the board, we would have to look at it. That might be an unpopular move but I don't think any chairman has walked away from his job as a hero."

The decision to appoint Malky Mackay as the replacement for Brendan Rodgers might also have been made with one eye on the balance sheet, although Russo insists he has snared one of the brightest managerial prospects.

The Scot's CV might lack experience - his one previous taste of life in the dug-out came during a three-week stint as caretaker after Adrian Boothroyd's sacking last October - but his references are impeccable, with none other than Sir Alex Ferguson advising Russo to hand him his big break.

"Sir Alex rang on another matter but while he was on I asked for his advice and he said Malky was an excellent candidate," Russo added.

"Maybe he saw something of himself in him. Malky also has a strong character, he's a disciplinarian and his personality is what you're looking for.

"He just said that if we went with Malky we wouldn't go far wrong and that was good enough for me."

Mackay will be confident of opening his account with victory tomorrow.

New signing Danny Graham - who could cost up to £500,000 after the Football League tribunal ruled on his move from Carlisle last night - will be handed a full debut after impressing in pre-season, while McAnuff should have recovered from flu.