Pictured above: Dilip Dattani
Many smaller firms across Nottinghamshire could find themselves
fighting survival, following a 'ripple effect' caused by the
collapse of construction giants Connaught and Rok.
The warning comes from Nottingham-based RSM Tenon, the
accountancy and business advisory firm which predicts that the
demise of Rok and Connaught, the social housing maintenance
company, highlights the hard times the construction sector is
witnessing.
Dilip Dattani RSM Tenon, director of the Nottingham office's
recovery and insolvency service line, said that the construction
sector could further suffer in 2011
He said: "What we are seeing in the construction sector is the
result of a ripple effect right across the supply chain. When a
large business fails, the knock on effect can be devastating as it
can filter right through the whole industry - it is not uncommon
for failures of businesses four or five levels removed from a large
failure to occur 12 months or more later.
"Small businesses which supplied Rok and Connaught may well
struggle to survive after their administration. Locally, there have
been job losses following the demise of Connaught. There could well
be other effects to local businesses."
The construction sector was hit hard in 2008 by dramatic
reductions in work due to private property sector difficulties and
is now being affected by proposed public sector cuts that will only
take full effect well into 2011 and beyond.
Dilip said: "Confidence in the construction sector is also a
very important factor - negative publicity can push suppliers to
ask for quicker payment terms causing less working capital being
available. Credit Insurance is also an important factor for this
sector as there are only three key players in the market and if
they withdraw the credit percentage or limit it, the cashflow
within the business can also be severely damaged.
"In my experience, the construction sector is currently
operating on tiny, if not, negative margins. Some firms are taking
on contracts with negative margins for cash flow to try and sit it
out. Unfortunately, it could be a prolonged period of difficulty
and some may struggle to survive".
RSM Tenon's top tips to surviving the property and construction
sector:
1) Cash is king: have the best cash management approach - it's
simple and it's the most important thing in your business
2) Know where you are; are your records good enough to show
where you are today?
3) Rehearse the most difficult conversations you could have with
suppliers, clients, customers, employees and financiers.
4) Have a Plan B for every eventuality; some may be remote but
do not be caught unprepared
5) Act - don't wait!