Thousands of construction businesses could close, putting jobs at risk across the sector, as new data reveals a concerning trend of increasing insolvency rates despite business owners perceiving low levels of risk.
Findings from a BICS survey, which polled over 10,000 business owners in construction, accommodation and food services, and wholesale and retail sectors reveal that three quarters of construction businesses are perceiving low to no risk of insolvency, while analysis shows that less than 9% of construction businesses are confident in their ability to meet debt obligations.
The BICS survey also shows that more than a quarter of business owners in the construction sector expect turnover to decrease, which presents a significant risk to UK jobs - particularly as fewer than half (43% - 46%) of business owners feel confident in their ability to meet debt obligations.
Alarming market insight similarly revealed that actual insolvencies increased from 154 to 361 throughout the last 22 months, representing a 2.3x increase.
Chand Chudasama, Partner in the Strategic Corporate Finance team at Price Bailey Chartered Accountants comments: “What is particularly concerning from our findings is that despite the significant increase in construction sector insolvencies, the number of business leaders who anticipate insolvency risk for their business hasn’t changed.
“There is a risk that some construction business leaders are being over optimistic in appraising the financial challenges ahead.
“In these situations, turnover decline is often not the sole cause of company failure, in the construction sector we typically see WIP management, labour shortages and material supplies causing significant financial pressure.
“These pressures then get magnified if the business is highly geared with debt, which is the nature of the working model in this industry”.
“Business leaders across this sector must focus on maintaining strong live and accurate management information across all three financial statements and plug this live and historical financial data into powerful forecasts to underpin decision making.
“It is also critical to actively manage Work in Progress, cash and milestone payments to get ahead of problems”.
Notes to Editor
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