Increasingly competitive pricing, rising material costs and skills shortages have amplified financial struggles in the construction sector, leading to a 35% increase in insolvencies.¹
Construction firms across the UK are experiencing financial difficulties, with specialised construction businesses and building construction companies experiencing the most insolvencies.²
To help construction business owners take control of their finances and build resilience, James Mellars, Key Account Director at BPI, the UK’s leading Asset Disposal Specialist, outlines strategic approaches to raise funds, reduce costs and navigate the current turbulent economic climate.
Business owners can maintain a strong financial foundation through effective cash flow management, prudent budgeting and monitoring of expenses, and diversifying revenue streams to reduce dependence on specific clients or project types. This, alongside risk management strategies to mitigate potential issues and protect against unforeseen circumstances, is crucial for business resilience.
With the construction industry significantly affected by energy price increases, reducing operational costs is key. The industrial sector has faced a 45% rise in electricity costs and a 32% hike in total fuel prices in 2023.³
To mitigate these costs, construction businesses should invest in cost-effective technology to optimise workforce efficiency, such as pre-owned machinery and equipment. This approach can help businesses accelerate order fulfilment while reducing the upfront costs to purchase new equipment, freeing up cash to accommodate soaring utility expenses.
Additionally, business owners can exploit a rising interest in pre-owned construction tools by selling surplus or unused equipment and machinery. Construction business assets can be auctioned online for a quick capital infusion, which could be used to pay for more innovative equipment, improved premises, or invest in automated technology to speed up production and maximise profits.
For businesses going through a period of financial pressure, restructuring or relocating their business can offer cost-saving advantages. Selling redundant machinery and equipment can help create space and generate cash flow quickly, giving business owners the flexibility to consider reducing the size of their premises or locating to a new geographical area to save on overhead costs.
Furthermore, additional cash flow could be used to create an emergency fund to assist with quieter periods in the business, especially as construction output trends predict a substantial fall this Winter – a 0.5% drop in August 2023 equated to a £15.6 million loss.⁴
Business owners can gain a higher return on investment when selling assets by taking advantage of government support schemes, such as the Business Asset Disposal Relief. This allows owners to pay a reduced tax rate of 10% when disposing of certain business assets, ultimately generating more cash flow for the business. For more information, visit the official government website to determine your eligibility and speak to a trusted financial professional to support the application.
James summarises: “As we approach 2024, it is essential for construction business owners to take decisive steps to safeguard their company’s security and financial wellbeing.
“Regularly reviewing business assets is an easy way to identify unused equipment. Working with an asset disposal specialist, like BPI, can support business owners looking for a fast, hassle-free capital influx. This is especially important if a company is undergoing a notable financial decline, as freeing up cash flow and space can significantly contribute to business resilience and sustainability.”
You can find out more about how to protect your business from insolvency here: https://www.bpiauctions.com/news/how-to-protect-your-business-from-insolvency/
- https://www.gov.uk/government/statistics/monthly-insolvency-statistics-september-2023 (Comparing construction insolvencies from January 2023 to September 2023.)
- https://www.gov.uk/government/statistics/monthly-insolvency-statistics-september-2023 (CSV, table two. Data shows 215 specialised construction business insolvencies and 154 building construction insolvencies.)
- https://www.gov.uk/government/statistical-data-sets/industrial-energy-price-indices (Comparing April-June 2022 to the same period in 2023.)
- https://www.ons.gov.uk/businessindustryandtrade/constructionindustry/bulletins/constructionoutputingreatbritain/august2023 (Section 1, main points.)