Nearly 100,000 construction companies in financial difficulty

Nearly 100,000 small construction companies are in financial difficulty, a disaster recovery expert has warned.

Analysis of Begbies Traynor’s Red Flag Alert data service, carried out by its Real Business Rescue operation, found that 96,067 small and medium-sized enterprises (SMEs) in the construction sector were in “significant financial distress” in the first quarter of This year. This means that these businesses have either been subject to county court judgments of less than £5,000 or have been identified as having sustained or marked deterioration in key financial indicators such as working capital, profit not distributed and net worth.

The number of construction SMEs in difficulty increased by 21% compared to the previous quarter, when almost 80,000 companies were identified as being in difficulty. More than 250,000 jobs are at risk, according to Real Business Rescue.

Rob Driscoll, director of legal and business affairs for the Electrical Contractors Association, said the data was “extremely concerning” at an “extremely difficult time” for many small businesses in the sector. Construction companies face a number of challenges this summer, Driscoll added, from cuts to pandemic support schemes to new IR35 rules on self-employment classification. Material shortages and changes in how VAT is paid through the supply chain are also impacting many people.

He urged big entrepreneurs to take the problems faced by small businesses seriously: “We encourage everyone in the supply chain to work together. [as losing companies could] jeopardize the delivery of projects and the future ability of the industry to complete all projects, especially the public sector pipeline which is critical to the recovery of our sector,” he said.

Shaun Barton, national director of online business operations for Real Business Rescue, said COVID-19 will continue to impact businesses throughout this year. He said the success of exiting the lockdown would be decisive: “The sector must stand firm in the hope that the unlocking roadmap starts to have a positive impact,” he said.

The industry saw strong levels of activity at the start of the second quarter of 2021. The Purchasing Managers’ Index showed workloads near a seven-year high during the month. However, the boom in activity has helped push material costs up at the fastest rate since the PMI began 24 years ago.

Sarah J. Greer