The Construction industry is an important part of the Scottish economy, employing around 175,000 people with an annual output value of around £14bn.
Despite this, some recent high profile insolvencies and reports highlight an increasing number of small and medium sized construction companies are showing signs of critical distress, once again drawing some negative headlines for the sector.
Concerns about the UK economy and whether it can withstand a no-deal Brexit, coupled with longer running issues such as high import costs and skilled worker deficits, have been cutting through and impacting key investment decisions. A recent report by the Federation of Master Builders highlighted that the first three months of 2019 saw the first fall in workloads for SME construction firms in six years.
In addition to the ongoing political uncertainty and its impact on workload, there are many other challenges facing SME businesses in the sector. Labour shortages and rising material costs are eating into margins, and intense competition for the little work that is being put out to tender is forcing contractors to bid exceptionally low.
With increased pressure on wages, an expected increase in material prices and still the widespread issue of poor payment performance, it is an industry with real cause for concern.
Changes to the way in which construction businesses will account for VAT, which come into effect from 1 October 2019, will add to these existing pressures for a large number of sub-contractors in the supply chain. Many firms will no longer be able to charge, collect and declare VAT which may reduce cash flow in their business by up to 20%. The impact will be significant for many. A recent article by Greg McNally, VAT Partner, goes into these changes in more detail.
While these issues are worrying, there are ways to manage the impact. Our Business Improvement Services team is vastly experienced in working with businesses in the construction sector and can assist in areas such as profit improvement, cash flow management and external funding. Our team can explore various ways in which you can improve the performance of your business, increase agility and the options available to help you. Analysis techniques can help you understand where gaps are and help inform a range of solutions.
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The information in this blog should not be regarded as financial advice. This is based on our understanding in June 2019. Laws and tax rules may change in the future.