2023 could be a year of great opportunity for your business but first we need to look at the potential threats that lie ahead, says Barry Ashmore.
AS a naturally optimistic person I’ll always look for the best or most favourable outcome in any given situation and later in this article I’m going to tell you why I think 2023 could be a year of great opportunity for your business. But first we need to look at the potential threats that lie ahead.
The threats to watch out for!
According to the experts at Red Flag Alert, construction is facing a challenging year ahead with more than 6,000 company insolvencies expected in 2023.
Red Flag Alert estimates there is roughly £300m in bad debt in the UK construction industry when we entered 2023, and this could increase to £1bn by the start of 2024. That is a massive amount of bad debt.
The financial experts warn companies who’ve previously managed to just keep their heads above water are going to be dragged under by the bad debt left behind by those that fail. We’re all familiar with the debacle over Carillion and how long they limped along while concealing the truth about their financial problems.
In July, three former Carillion directors were fined nearly £900,000 for ‘recklessly’ publishing misleading accounts.
And here’s a recent example of how one failure can impact otherwise financially healthy companies which comes from widely reported failures on a couple of Buckingham Construction projects:
‘In the year to 31 December 2021, Buckingham Group Contracting slipped to a pre-tax loss of £10.7m. The loss was attributed to a deficit of £14.2m on a single significant stadium contract – reportedly the new Riverside stand at Fulham Football Club’s Craven Cottage ground – of which more than half of the loss was down to ‘the very significant cost impact caused by the financial failure of a major and critical subcontractor’. This supplier ultimately entered voluntary liquidation in February 2022.’
And most recently Construction News reported:
‘The Essex-based cladding contractor SD Samuels (Special Projects) Ltd has filed for administration before completing the work, Construction News can reveal. One of the firm’s highest profile recent contracts is the roofing and cladding on The New Anfield Road Stand at Liverpool Football Club for main contractor Buckingham Group. The building envelope specialist has been in business since 2004 and is a preferred supplier to a raft of major contractors including Ashe, ISG, Kier, Morgan Sindall, Vinci and Willmott Dixon.’
In this example one specialist contractor’s failure has had a major impact on an otherwise profitable main contractor. And while Buckingham will undoubtedly rebound, it’s easy to see the massive impact of S D Samuel’s failure will send financial shock waves through all the contractors they were working for.
‘But I’m a flooring contractor not a cladding contractor, so how is all this going to impact me,’ I hear you saying to yourself. So, here’s what I see is going on in the industry right now and why you should be concerned.
First, Buckingham Group is huge with a turnover that has grown from £485m in 2019 to £665m in 2021. But that growth hasn’t led to an increase in profit. In fact, the reverse is true with profits falling from a profit of £10m to a loss of £10.7m in the same period.
That should be telling you that even the biggest and seemingly successful companies are not fool proof. They can get things wrong just like the rest of us. And when they get it wrong and make a loss that is going to impact their cashflow just like any other business (Buckingham’s reported working capital almost halved) and that in turn affects their ability to pay their supply chain.
And it’s a bit like the proverbial line of dominoes with one set of problems having a knock-on effect and right across the board late payment and non-payment are compounding the pressure generated by staffing and supply chain issues, a legacy of Covid-19, inflation and interest rates rises.
Red Flag Alert’s director of data, Mark Halstead, added: ‘The rising costs of operation and borrowing, married with supply issues and economic uncertainty means that 2023 is a perfect storm for insolvency in the construction industry.’
So, you must be alive to the fact that the next 12 months are going to be extremely challenging. And you must protect your business with sound commercial and contractual management, so that you’ll be ready to take advantage of the opportunities all this turmoil will present.
Referring to the dangers ahead Dr Nicola Headlam, Red Flag Alert’s chief economist, said: ‘This isn’t good news for the industry and UK as a whole.’
But here’s the thing, she also said: ‘This will lead to a much smaller pool of construction companies available for contracts and for suppliers to do business with. The post-recession economic bounce back will be hampered by a lack of building companies available for projects in the next growth stage, and a supply chain that will be unable to respond to growth signals…’
Turning that on its head what that should be shouting out to you is that a good many flooring contractors will be among the casualties and as a result contractors and suppliers are going to need you and your expertise more than you need them.
That’s right. The number of capable and available flooring contractors is diminishing, and you must ensure you’re not convinced otherwise by some contractors who simply want the cheapest price and will screw you over at every opportunity.
Stand your ground, do your research, put your prices up, make sure variations are priced properly and don’t tolerate underpayment or late payment.
It’s the basic law of supply and demand and when demand exceeds supply, and there aren’t enough competent flooring contractors available to meet demand, then you need to take full advantage of that.
Direct help and assistance
If you want to protect your business in 2023 and into the future, or things are going wrong right now, please don’t bury your head in the sand, you must take action. Or maybe you want to know how our marketing expertise has helped other specialist contractors to fill their order books with profitable work.
Either way, whether you have a problem or just want to know how we can help your business be more successful give us a call. Our initial advice is free.
Barry Ashmore is managing director and co-founder of StreetwiseSubbie.com