Almost nine in 10 construction and property firms are either already experiencing serious financial distress or expect to do so within the next eight months, according to new research that highlights growing pressure across the sector.
The findings, published in Menzies LLP’s Fixing the Foundations report, are based on a survey of 250 senior decision-makers from UK construction and property businesses. They paint a picture of an industry grappling with rising costs, squeezed margins and persistent payment delays.
According to the research, 86% of firms said they are either already in financial distress or believe they are at risk of reaching that point in the near future. The average respondent estimated that their business could face serious financial difficulties within eight months if current conditions persist.
Late payments emerged as a major concern, with 93% of firms reporting overdue payments from clients, contractors or supply chain partners. On average, payments were found to be running 53 days late, creating significant cashflow pressures throughout the sector.
Inflationary pressures continue to weigh heavily on profitability. Almost a quarter (23%) of respondents said rising labour and material costs are placing unsustainable strain on project margins, while one in five (20%) reported that contracts agreed before inflation accelerated are now generating far less profit than anticipated.
Meanwhile, 18% said project delays have eroded profitability to such an extent that some developments no longer make financial sense, while the same proportion identified late payment as one of the biggest threats facing their business.
The research also suggests many firms are effectively acting as lenders to keep projects moving. One in five respondents said they are financing projects from their own working capital while waiting for payments to arrive, increasing exposure to financial risk and placing further pressure on already stretched balance sheets.
The findings come as the construction sector continues to play a critical role in delivering new homes and infrastructure, raising concerns that ongoing financial pressures could have wider implications for housing supply and development activity if cashflow challenges remain unresolved.
Freddy Khalastchi, partner at Menzies LLP, commented: “Too many construction businesses are still trading, still winning work, but heading in the wrong direction without realising it. A full order book can mask a lot of problems, and in construction the gap between looking busy and being profitable can widen faster than most owners appreciate.
Khalastchi continued: “Most firms usually come to us for advice because something has forced their hand, but by that point, the routes available for recovery are far narrower than they would have been six months earlier. The firms that manage to work through their financial issues are not always the biggest or most resourced. They are the ones that recognised the warning signs earliest.
“Our advice is simple: take expert advice at the first sign of pressure and make sure that in doing so, you have all the financial information relating to your business at your fingertips. You cannot dictate when a client pays or how geopolitics disrupts your supply chain. But you can control how prepared you are for when they do.”
