The construction industry has seen a dramatic and sharp rise in company insolvencies which is forecast to continue during 2023. As reported by the Insolvency Service, in 2022, the construction industry experienced the highest number of insolvencies of any sector in England and Wales, with 4,143 company insolvencies reported, accounting for 19% of all company insolvencies. We must be aware that the construction industry usually has the highest quarterly number of insolvencies of any industrial grouping. The amount of company insolvencies in the construction industry had almost doubled compared to 2021 (with 2,579 company insolvencies reported).
According to a recent report from Red Flag Alert, a “perfect storm” of factors could lead to more than 6,000 company insolvencies in the UK construction sector during 2023, and it warned that over 100 firms in the sector could collapse each week.
Several components have contributed to this “perfect storm”, including the long-term effects of the COVID-19 pandemic, the Russian-Ukraine conflict, inflation, and the increase in energy prices. According to the ONS, in October 2022, just over 12% of Business Insights and Conditions Survey (BICS) respondents from the construction industry perceived energy prices as the main concern for their business between late February and early October. In this period, almost 41% of respondents saw inflation of goods and services as the primary concern for their business.
Given these contributing factors, it is expected that many construction projects will suffer delay and/or termination, and commercial parties will seek ways to maximise recovery, leading to a rise in contractual disputes.
The risk of insolvency can be reduced if you monitor your finances. You should compare actual performance against your budget. If problems arise, it’s important you take action early. You should consider:
- improving cashflow
- negotiating with creditors
- getting advice from professionals
Keeping cash flowing into the business is a challenge. Ways to improve your cashflow include:
- bill promptly to ensure a steady flow of cash
- avoid overtrading by only accepting orders you can fulfil
- recover debts by chasing up debts owed to you
- trim your inventory using a stock reduction plan
- renegotiate your credit limits and payment dates with suppliers
- reduce overheads such as wage costs
You can get advice from your accountant on how to improve your cashflow.
Negotiating with creditors
Don’t ignore your creditors. If you are a sole trader and they are owed more than £5,000 or, in the case of a limited company or partnership, they are owed more than £750, your creditors can apply for your bankruptcy or ask the court to wind up your business.
Talk to your creditors before you become formally insolvent. You should try to renegotiate any deals you have with them. You will need to be realistic and honest about what you can afford to repay them.
If your business is navigating the turbulent waters of “the perfect storm”, you should seek professional advice. This will give you time to assess the alternatives open to you.
At Ingenium Talent, we have first-hand experience in supporting businesses through challenging periods. We have supported our clients in mitigating insolvencies and also helped others through the processes. You should get in touch immediately if:
- you cannot cover your debts
- the business receives a statutory demand
- you cannot pay staff wages
- there is an acute lack of working capital
Alternatively, if you can see the storm on the horizon, get in touch for a free consultation on how we may be able to help: firstname.lastname@example.org← Back to all articles