19 Apr 3 Tips For Avoiding Insolvency In The Construction Industry
Construction is a vital industry; it creates buildings and spaces that connect communities, provide jobs and generally improve society. Not only that, but construction is one of the largest sectors of the UK economy. According to Statista, in 2022 the gross value added (GVA) of the construction industry in the United Kingdom amounted to almost 128.9 billion British pounds, compared with 122 billion pounds in the previous year.
However, in recent years the construction industry has faced a number of unprecedented challenges. Due to the coronavirus pandemic, construction faced cancelled or delayed projects, many crucial goods and services to carry out work were unavailable and material costs soared. As a result, many companies have struggled to recover from financial losses or have gone bankrupt as a result. In January 2023, it was predicted that over 6,000 construction companies will face insolvency this year and it is feared that more than 100 building firms will go bust every week.
If your company is facing insolvency, there is no set path you can take to stop this from happening. However, there are key steps you can take to ensure that you are doing everything possible to avoid the risk of insolvency. Throughout this article, I will be explaining these three steps in more detail, they are: managing costs, diversifying your customer base and managing risks.
This may seem self-explanatory, but if you want to take the necessary steps towards avoiding insolvency in these volatile and unpredictable times, you need to manage your costs effectively. This means having a clear understanding of your costs at all times and avoiding any cost overruns. There are many factors that can drive your budget over, so you need to make sure that you are reviewing your process and your plan throughout the project. If your costs look like they could overrun, are there any changes you can make to stop this from happening?
Diverse customer base
Are you relying on a small number of customers to keep your company afloat? Whilst having loyal customers is extremely important, you must also make sure that you are not reliant on them for your income. If you think that losing a particular customer could put your company in jeopardy, it is time to diversify your customer base. Are there any different projects you could branch out to? Could you do more to advertise your company? These are all things you should consider when taking the steps to lower the risk of insolvency.
Do you have a secure plan in place if things go wrong? If the last few years have taught us anything, it is that you never know what is around the corner. There are many things that can go wrong on a construction project that can result in delays or even an unsuccessful project. Are you prepared for the worst? If you have a risk management plan in place, you will be able to identify, monitor and mitigate risks as they arise. For example, what would you do if sudden labour shortages impacted your project?
Insolvency has become a huge concern for many companies in the construction industry and if the predictions are true, many will be facing these tragic circumstances in the coming year. It is important to remember that these steps are not guaranteed to stop your company from facing insolvency. However, they can help you to mitigate the risk and you can sleep more peacefully knowing that you are taking every possible precaution to avoid insolvency.
Remember, if you are faced with a legal issue on your project, Mercantile Barristers will be happy to assist. Similarly, if there is anything from this article you would like to discuss, do not hesitate to message me directly.
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