Construction SMEs at growing risk of failure

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The latest Business Distress Index from Real Business Rescue, a division of insolvency accountants Begbies Traynor, reports an 11% rise in the number of construction companies that it considers to be “in significant financial distress” – reaching 79,570 for the fourth quarter of 2020.

It sounds bad. But perhaps the bigger story is that, by Begbies’ reckoning, a massive 92% of the 992,000 construction businesses trading in the UK last year (Source: House of Commons Library briefing paper 06152, 22nd January 2021) are not in any significant financial distress, despite all the challenges of the pandemic.

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Real Business Rescue reckons start-up construction firms (those started since 2017) are at particular risk. It says that construction start-ups ‘in significant distress’ had increased by 21% in the last quarter due to the pandemic. There are now 15,247 of these fledgling businesses – a 77% increase since the start of lockdown when there were 8,592 in distress.

Shaun Barton, a director at Real Business Rescue, said: “Whilst the construction sector has been largely able to operate once initial restrictions from the first lockdown were lifted, nonetheless it is clear that many smaller sized firms have struggled as 2020 progressed. Start-ups have been particularly hard hit. We have a seen a 77% increase in start-ups falling into financial distress since last March and this trend has continued with another significant leap in the last quarter of 2020. The sector needs to stand firm in the hope that an upturn in economic activity and a return to more normalised demand conditions will help its recovery. With restrictions currently in place, it may well be later into 2021 that we see this materialise.”

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