Third of construction firms surveyed worry they won’t last the year
More than a third of construction firms are concerned they won’t be able to trade into 2025, according to a new report from business advisory firm FRP.
Of the 502 senior decision makers surveyed across the UK, 36% aren’t confident that they will be able to trade through the next 12 months.
The East Midlands and North East report the largest proportion of firms pessimistic about their prospects, with 64% and 45% respectively uncertain they’d make it through the next year. The South West (20%) and North West (24%) have the most optimistic construction sectors, although still host sizeable proportions of businesses fearing for their future. A quarter of firms based in Greater London (25%) express worries about their trading ability.
Tax burdens are a major concern for the construction sector, with 65% of respondents admitting that they will struggle to pay their tax liabilities or any outstanding tax in full this year. Meanwhile, more than three quarters (76%) say that political uncertainty in an election year is either causing them to delay investments or prompting clients to postpone commissioning new work.
Businesses also say energy (13%), labour costs (13%) and weak end-customer demand (12%) are likely to damage their prospects, while many respondents flag difficulties securing necessary funding amid a heightened cost of capital and greater scrutiny from lenders over current and projected financial performance as an issue. Thinking about last year compared to the year before, more than half (51%) of respondents report it was harder to secure the backing they needed.
In response to the headwinds they face, construction firms are planning a range of actions to bolster their businesses, including re-negotiating contracts (23%), selling off assets like machinery and switching to leasing them instead (20%), and changing suppliers to cheaper alternatives (20%).
More positively, 39% say they expect to grow profits in the year ahead, while 36% expect to grow revenues.
Justin Matthews, Financial Advisory Partner at FRP, said: “It’s been a tough time for construction. High interest rates, weak economic growth, persistent inflation, supply chain disruption and delays or cancellation to infrastructure projects have exacerbated strain caused by existing, heightened levels of pandemic-era debt, testing business’ resilience to the limit. Meanwhile, trade credit terms have become tougher due to recent collapses and poor trading conditions this winter have delayed progress on projects, straining cashflow.
“For some, this has been unbearable. Construction saw the highest number of insolvencies of any UK sector during both 2022 and 2023, and our data highlights just how many in the sector are looking ahead worrying that they could find themselves in the same position.
“However, our findings also highlight a sector that’s worked hard to adapt how it operates to build its resilience, and which is continuing to do so. Those firms that can take steps to build a strong foundation – such as effectively managing key stakeholders, including their lenders and HMRC, and building and maintaining a 13-week rolling cashflow forecast – and that proactively seek solutions to challenges will be in the best position for long-term success.
“When it comes to outstanding tax liabilities, for example, our experience shows that HMRC is willing to explore ‘time to pay’ agreements. But it’s not going to enter into these lightly – good preparation, a good reason and a genuinely achievable repayment plan are all key to increasing the chances of securing some much-valued recovery room.”
To read FRP’s full report, click here.
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