Financial challenges for the construction industry

Apr 10, 2016 | Corporate Insolvency

With construction one of the most lucrative and important industries in the Australian economy, in times of difficulty there can be impacts on the entire nation. Figures from the Australian Industry Group (Ai Group) help give a sense of just how critical the sector is, noting that direct construction industry output accounts for 7.8 per cent of the country’s GDP. That’s second only to resources and mining (8.8 per cent) and financial and insurance services (8.7 per cent) in terms of impact.

With that in mind, whenever financial trouble seems to strike the sector, it’s worth paying attention to. And strike it does, apparently much more often than other fields. According to the Australian Securities and Investments Commission (ASIC), businesses in the construction industry face more insolvencies

With construction one of the most lucrative and important industries in the Australian economy, in times of difficulty there can be impacts on the entire nation. Figures from the Australian Industry Group (Ai Group) help give a sense of just how critical the sector is, noting that direct construction industry output accounts for 7.8 per cent of the country’s GDP. That’s second only to resources and mining (8.8 per cent) and financial and insurance services (8.7 per cent) in terms of impact.

With that in mind, whenever financial trouble seems to strike the sector, it’s worth paying attention to. And strike it does, apparently much more often than other fields. According to the Australian Securities and Investments Commission (ASIC), businesses in the construction industry face more insolvencies than any other single sector, with 1,771 lodgments in 2014-15 alone.

For an industry that the Department of Employment says employs more than one million people in Australia, this level of volatility and instability is obviously a concern.

 

What’s the problem with construction?

 

The source of much of the industry’s downward momentum is difficult to pinpoint, with a number of factors playing into the figures. However, findings from the Ai Group/Housing Industry Association (HIA) Australian Performance of Construction Index (Australian PCI) suggest much of the blame can be laid at the feet of one of the large GDP contributors mentioned above – the mining sector.

The resources downturn – which geologist Chris Nellist recently told the Telegraph was the worst in a century – has resonated across the economy, with construction being one of the hardest-hit industries. Peter Burn, Ai Group head of policy, says the fallout is combining with other weak spots such as residential.

“The overall decline in the residential sectors’ performance follows the retreat in recent months of dwelling approvals – admittedly from very strong levels,” he said. “Declining engineering construction continues to be a drag on the construction sector and the broader economy as mining-related work continues to roll back.”

These tough times don’t appear to be showing any signs of easing either, with HIA economist Geordan Murray commenting that Australia’s transition away from the resources boom has some way to go yet.

“The old story about mining-related construction coming back down to earth, while other sectors struggle to fill the void, continues to come through in the Australian PCI data […] It is unlikely that a pick-up in conditions in other sectors will fully offset the contraction in mining investment over the next few years,” he said.

 

How can construction businesses cope with money problems?

 

Like companies in any other sector, those in the construction industry have a number of options when it comes time to address financial concerns. Your actions will obviously depend on the severity of your unique situation, but seeking the advice of expert organisations such as Corporate Lifeline is always a good first step.

In the meantime, there are some preliminary steps that a business can take to try and ease its financial burdens.

 

  • Boosting cashflow: It’s perhaps no surprise that, without regular, reliable sources of cashflow, your business difficulties will quickly escalate to unmanageable levels. Improving the rate at which funds come in can be difficult, as often it’s in the hands of your debtors, but taking the time to assess your debt collection strategy and making adjustments can deliver quick results.
  • Cutting Costs: The last thing your business needs when times are particularly tight is escalating costs, so looking for ways to tighten up the belt around the workplace is a good strategy. Whether searching around for better deals from your various service providers, speaking to creditors and suppliers about better deals or even reviewing your internal processes or systems for efficiency shortfalls, there may be a number of areas in which your costs can be reduced.

 

Formal financial options and Corporate Lifeline

 

Should your construction business’ financial position require a more thorough solution than simply tightening up operations here and there, that’s when some level of restructuring or even insolvency should be considered. This doesn’t have to be looked at as the end of your business, but rather a chance to reshape your organisation into something much more efficient and effective.

A good first step might be a solvency analysis, where an expert advisor will conduct a review of your financial position and calculate whether moving forward with insolvency proceedings will be necessary. Should that be the outcome, with Corporate Lifeline you and your business will be put in the capable hands of an experienced insolvency practitioner who will guide you through the process to a hopefully satisfying result.

The construction sector can be a tough one to survive in. For the best advice on how to keep your operation afloat through periods of financial difficulty, pick up the phone and speak to Corporate Lifeline today.than any other single sector, with 1,771 lodgments in 2014-15 alone.

For an industry that the Department of Employment says employs more than one million people in Australia, this level of volatility and instability is obviously a concern.

 

What’s the problem with construction?

 

The source of much of the industry’s downward momentum is difficult to pinpoint, with a number of factors playing into the figures. However, findings from the Ai Group/Housing Industry Association (HIA) Australian Performance of Construction Index (Australian PCI) suggest much of the blame can be laid at the feet of one of the large GDP contributors mentioned above – the mining sector.

The resources downturn – which geologist Chris Nellist recently told the Telegraph was the worst in a century – has resonated across the economy, with construction being one of the hardest-hit industries. Peter Burn, Ai Group head of policy, says the fallout is combining with other weak spots such as residential.

“The overall decline in the residential sectors’ performance follows the retreat in recent months of dwelling approvals – admittedly from very strong levels,” he said. “Declining engineering construction continues to be a drag on the construction sector and the broader economy as mining-related work continues to roll back.”

These tough times don’t appear to be showing any signs of easing either, with HIA economist Geordan Murray commenting that Australia’s transition away from the resources boom has some way to go yet.

“The old story about mining-related construction coming back down to earth, while other sectors struggle to fill the void, continues to come through in the Australian PCI data […] It is unlikely that a pick-up in conditions in other sectors will fully offset the contraction in mining investment over the next few years,” he said.

 

How can construction businesses cope with money problems?

 

Like companies in any other sector, those in the construction industry have a number of options when it comes time to address financial concerns. Your actions will obviously depend on the severity of your unique situation, but seeking the advice of expert organisations such as Corporate Lifeline is always a good first step.

In the meantime, there are some preliminary steps that a business can take to try and ease its financial burdens.

 

  • Boosting cashflow: It’s perhaps no surprise that, without regular, reliable sources of cashflow, your business difficulties will quickly escalate to unmanageable levels. Improving the rate at which funds come in can be difficult, as often it’s in the hands of your debtors, but taking the time to assess your debt collection strategy and making adjustments can deliver quick results.
  • Cutting Costs: The last thing your business needs when times are particularly tight is escalating costs, so looking for ways to tighten up the belt around the workplace is a good strategy. Whether searching around for better deals from your various service providers, speaking to creditors and suppliers about better deals or even reviewing your internal processes or systems for efficiency shortfalls, there may be a number of areas in which your costs can be reduced.

 

Formal financial options and Corporate Lifeline

 

Should your construction business’ financial position require a more thorough solution than simply tightening up operations here and there, that’s when some level of restructuring or even insolvency should be considered. This doesn’t have to be looked at as the end of your business, but rather a chance to reshape your organisation into something much more efficient and effective.

A good first step might be a solvency analysis, where an expert advisor will conduct a review of your financial position and calculate whether moving forward with insolvency proceedings will be necessary. Should that be the outcome, with Corporate Lifeline you and your business will be put in the capable hands of an experienced insolvency practitioner who will guide you through the process to a hopefully satisfying result.

The construction sector can be a tough one to survive in. For the best advice on how to keep your operation afloat through periods of financial difficulty, pick up the phone and speak to Corporate Lifeline today.

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