New report reveals how firms can navigate challenging market conditions and kickstart growth
Insolvencies in the construction sector have continued to increase – a likely outcome given they are yet to reach pre-COVID levels, according to a new report by CreditorWatch.
The report, titled Cracks in the Foundation 2023, provides an analysis of the current state of the construction industry, with guidance to help firms navigate challenging market conditions and kickstart growth.
CreditorWatch's March Business Risk Index showed that the rate of insolvencies in construction accounted for 0.7% of all businesses in the sector – second only to insolvencies in the food and beverage sector during the same period.
Patrick Coghlan (pictured above left), CEO at CreditorWatch, said opportunities for firms to kickstart growth abound, despite the issues impacting the construction industry.
“Construction companies have hit the headlines for all the wrong reasons over the past year, with a slew of business failures across the sector,” Coghlan said. “While conditions are expected to remain challenging in the immediate term due to supply chain disruptions, higher interest rates, labour shortages, and cost blowouts, there are a range of steps construction businesses can take to put themselves in the best possible position and continue to grow revenue and profits.”
James O’Donnell, founder of Open Analytics, said government assistance during the height of the pandemic delayed the demise of some construction businesses.
“The very low levels of insolvencies in the construction sector during the COVID-19 lockdowns suggest some businesses that continued trading through this period would not have survived during this time without government pandemic incentives,” O’Donnell said. “These businesses are now appearing in insolvency numbers due to more expensive inputs, higher interest rates and rising labour costs, as well as the absence of ongoing government handouts.”
Anneke Thompson (pictured above right), CreditorWatch’s chief economist, said that in the year to December, the value of construction work done has started to decline in most jurisdictions, with only New South Wales, Victoria, and Western Australia recording increases in construction work from the prior year.
Bruce Billson, Australian Small Business and Family Enterprise ombudsman, noted that smaller construction firms continued to be busy with a full book of work; albeit navigating challenges around rising costs, margin squeeze, cash flow pressures, the timeliness of payments, and wobbles among larger firms to which they are subcontracting to.
To help construction firms overcome these tricky conditions, the report offers insights and strategies from industry experts on how to enhance profitability – from proactively managing risk and improving cash flow, to using data to understand customer financial viability and maintain their ledger’s health. The report also outlines the signals of healthy construction projects and the warning signs that a project is in trouble – for both client and contractors.
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