While many construction companies make use of loans and credit to cover costs in hard times, these must be always paid back on time if you want to avoid business insolvency – whether you’re the owner of a long-established construction company or setting up a new business in the sector, take these tips on board to reduce long-term costs, cut down on debt and avoid insolvency:
During this critical period, how has the cost of construction materials increased?
From 2015 to September 2022, the price of materials increased considerably for those in the UK construction sector, with the price of fabricated structural steel rising by 128.6% and the price of steel concrete reinforcing bars rising by nearly 118%. Amidst rising fuel and energy costs, slowing industry growth and rocketing material costs, it’s more important than ever that business owners in the construction sector cut down on their outgoings.
What are the causes of insolvency in the construction business?
Insolvency refers to the state where you’re unable to pay back the debts you owe on time – if you can’t pay back your creditors and your liabilities outweigh your assets, you and your business can be declared insolvent. In the construction sector, the most common causes of insolvency are related to debt attributed to late payments for work – this is because businesses may often have to wait for 90 days or more for invoices to be processed after completing a job. Similarly, a contractor could see their profits shrink due to low margins, unexpected disruption and extra project costs, potentially leading to a failure to pay back their debts. Take these 5 tips on board to avoid insolvency for your business:
Work with accurate estimates
When budgeting or planning for any project, ensure that your estimates are as accurate as possible. If your estimates are not accurate, you’ll likely incur further costs later down the line when the time comes to correct your mistakes, extending the project time and leading to debt and potential insolvency.
Anticipate potential risks
In the same way, that accuracy in planning can go a long way in reducing potential errors, try to assess the possible risks of the project and factor these into your plan. Assign each potential risk with a cost and ensure there’s some space in your budget to iron out any problems should they arise.
Cover your business
Ensure that you take out builders’ insurance to cover your business and protect yourself, your clients and your employees – depending on the nature of your business, you may be required to take out builders’ public liability insurance, employer’s liability insurance and professional indemnity insurance.
Often, insolvent businesses may have to file for bankruptcy or be placed into administration or liquidation. To avoid this, keep a record of every aspect of your operations and processes, from budget, outgoings and communications to tools and materials. By staying organised and keeping records, you’ll be able to better keep on top of your finances.
Manage project times
Projects can overrun for all manner of reasons, so ensure that you’ve accounted for potential extensions of time in your plan. Failing to budget for disruption and unexpected extensions could see a depletion of profit and eventual insolvency, so plan and never underestimate a project!