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Many SMEs in construction sector are struggling to survive

Many SMEs in construction sector are struggling to survive

Accountants for contractors with clients in the construction sector may be unsurprised at the news that SMEs in this sector are having difficulties recovering from the recession.

Baker Tilly has surveyed construction SMEs whose annual turnover is between £5 million and £25 million and discovered that more than 25% of them have seen sales decrease by at least 20%.

The study also found that one in six construction SMEs is at risk of failing to repay its short and medium term debts. Furthermore, nearly 33% have seen their Profit Before Tax decrease by more than 50%. Despite this, liquidity in the construction sector is stronger than it is for SMEs across all sectors.

Mark Wilson, one of Baker Tilly’s partners, explained that some construction companies may have cash reserves but a lot will find the cash starts to run out as sales and profits continue to decrease. Slashing prices to win contracts does not help the bottom line and is not a sustainable solution in the long term.

He went on to say that the impact of government spending cuts and rising costs will increase the pressure on small firms in the construction sector. The cost of raw materials is rising throughout the world and this is hitting construction companies’ profits harder than firms in other sectors.

Denis Baker, the chief executive of Company Watch, also commented on the research findings saying that as well as highlighting liquidity issues, the fall in profitability and revenues will concern contractors, clients and suppliers who should take a proactive role in minimising their exposure to possible construction company failures.

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Construction work by tillwe

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