After a difficult 12 months for Queensland-based construction companies, insolvency experts have cautioned that there are tough times ahead.
Despite a steady period of growth and surging infrastructure activity, insolvency group SV Partners’ warned that more than 430 Queensland construction businesses are at high to severe risk of insolvency.
Smaller businesses related to the construction industry are being warned to keep an eye on their capital as activity faces a possible downturn.
The latest data from SV Partners’ Commercial Risk Outlook report said that while the construction industry has experienced steady growth so far in 2018 the benefits may not be shared among smaller construction service businesses.
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Plumbers, electricians, carpenters and residential builders are most at risk of financial collapse in the next 12 months.
SV Partners managing director Terry van der Velde said smaller construction services are more prone to a predicted residential building downturn and the least likely to gain from the rise in commercial activity.
“Industry bodies are forecasting a downturn in residential construction in the coming year, particularly in the apartment market due to oversupply, and there has already been reports of weakening apartment and unit dwelling approvals” van der Velde said.
“Construction companies need to keep a close eye on their cash flow to ensure they have enough capital to weather short to medium term cash flow shortfalls.”
SV Partners report showed 1,967 construction businesses, or three per cent of the industry, were at risk of failure.
It also found that a total of 12,338 businesses, or 2.4 per cent of incorporated Australian businesses across all industries, were at high to severe risk of financial failure over the next 12 months.
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Property is the country’s biggest industry contributing $200.9 billion (13 per cent) of GDP and is the nation’s largest employer with 1.4 million people.
“Construction businesses tend to be very interlinked, so when one business struggles to pay its creditors, it can have significant impacts on contractors in the chain,” van der Velde said
“Contractors in the finishing trades are often the first to be impacted by these struggles, as they are usually the last in the chain and hence the last to be paid, which creates cash flow strain.
Van der Velde says that despite these weaknesses, business can put in place strategies to cope with the changing conditions and make the most of opportunities.
“Implementing robust cash management strategies and well-thought- out capital structures can assist in future proofing a business.”