Updated: 28th June 2021
Building businesses are facing extreme cash flow pressure due to an unprecedented shortage of materials, compounded by reduced levels of coronavirus-related government support.
This crisis situation is likely to unfold further in the coming months as construction companies attempt to deal with serious financial distress. Slipping into insolvency will be inevitable for some building businesses struggling due to lack of materials, and which are unable to restructure.
So why are building businesses facing this crisis, and is there anything you can do if your building business is struggling or is already insolvent?
Scarcity of materials and increased costs
Building companies are finding it difficult to operate effectively due to a severe shortage of building materials, coupled with increased prices. Shipping costs have risen significantly due to a pandemic-related shortage of shipping containers, but prices for materials themselves have also increased.
More construction projects taking place
The scarcity of raw materials is partly a result of the increased number of commercial construction and home DIY projects being undertaken as lockdown restrictions ease, creating operational and financial difficulty for builders.
This is particularly so for small and medium sized building businesses that typically have far less storage capacity than larger companies, and therefore cannot stockpile materials in the same way. This hampers their ability to plan projects over a longer-term, and creates dependence on suppliers to access materials in real time as and when they’re needed.
Weather-related problems with timber supplies
Weather issues are also affecting specific products, with a milder winter in Scandinavia contributing to the scarcity of timber. This has further exacerbated the issue for building businesses, with prices increasing due to the unprecedented trading conditions.
So is there anything you can do to improve the financial situation for your building business, and deal with the operational issues in front of you?
Professional insolvency support is available at any time, not only when a business enters insolvency. Seeking help and advice from a licensed insolvency practitioner (IP) at an early stage can make the difference between riding out a period of uncertainty, and having to close the business down.
The UK operates a comprehensive insolvency regime aimed at rescuing businesses in distress, so there may be options available even if you believe your business will fail due to lack of materials.
These options could include, but are not limited to:
Alternative finance is flexible, and typically easier to secure than a traditional business bank loan. You may be eligible for a form of invoice finance called factoring, for example, which provides regular inputs of cash throughout each month.
If your building business owns non-essential assets, selling these would generate a lump sum to help you survive in the coming months. Additionally, sale and lease back arrangements may be suitable if your business has high value assets that can be sold and then leased back from the lender.
Restructuring business debts involves negotiating an affordable monthly payment that allows the business to continue trading. This type of instalment plan is called a Company Voluntary Arrangement (CVA).
CVAs generally last between two and five years and are legally binding, so your creditors cannot take legal action to wind up the company. Under this arrangement you can continue trading whilst repaying a proportion of your debts.
The reduction in government coronavirus-related support for business is creating severe financial pressure for many construction companies. If you’re experiencing relentless pressure from creditors, company administration offers an eight-week breathing space where no legal action can be taken.
The appointed administrator plans a path out of administration, which depending on your circumstances, might include the above-mentioned CVA, further funding, or perhaps a sale of assets.
HMRC Time to Pay
If you haven’t already approached HMRC for more time to pay your tax liabilities, their official Time to Pay scheme could relieve some of the pressure on your working capital. You would need a good record of filing and payment to be eligible, and also be able to demonstrate how the business can keep up repayments under the scheme.
If your building business is struggling due to lack of materials, please contact our partner-led team at Real Business Rescue as soon as possible - it’s very important to take early advice. We offer free, same-day consultations to quickly assess your situation, and also operate a broad network of offices around the UK.
13th October 2021
The Bank of England has said it anticipates that rates of corporate insolvency will increase in the coming weeks following the removal of restrictions on winding up petitions.Read More