Vijay Merchant is a partner at consultancy BTG Advisory<\/i><\/b><\/p>\n
When construction firms face tough times, the founders or families that own them often deliberate on whether they should use their own funds to prop the business up. But before investing, they must consider what strategic and leadership changes are needed for the company to survive and thrive.<\/span><\/p>\n \u201cWithout reviewing strategy and what needs to change in the business, owners could put their money in danger\u201d<\/span><\/p><\/blockquote>\n According to the latest Begbies Traynor Red Flag Alert data on construction firms in critical distress, the number stood at 6,999 in the second quarter of this year. That represents a rise of 15.8 per cent year on year. But while these businesses face a downward spiral, there is also hope of revival if their financial troubles are identified early and challenging decisions made.<\/span><\/p>\n The same data suggests that at least a third of these businesses have positive working capital; there is scope for additional funding to be raised via financing against existing assets, selling assets or entering into bespoke working capital facilities.<\/span><\/p>\n In these circumstances, following careful consideration of the company and its strategy, it may be possible for the firm to move forward and alleviate liquidity concerns \u2013 but on the basis that the core business remains viable.<\/span><\/p>\n However, some owners, often families, use their personal savings or the proceeds from asset sales, or they personally guarantee debt, to support the business. Often it is emotional attachment that drives this investment, not the business acumen that generated success in the past.<\/span><\/p>\n Many owners want to pass on their legacy to the next generation or avoid being the family member that let the business fade. And by making a personal investment, they can easily meet this objective.<\/span><\/p>\n In itself, such an investment does not have to be considered risky. However, the reality is that without undertaking a detailed approach to reviewing past and future strategy and, ultimately, what will change in the business, they could be putting the family money \u2013 not just the business \u2013 in danger.<\/span><\/p>\n There is a need to:<\/span><\/p>\n When these tasks \u2013 and more \u2013 are carried out, firms can take action accordingly. Money may then be injected in the knowledge that it is underpinned by real change in the business, which will help avoid future cash requirements.\u00a0<\/span><\/p>\n The change in direction might even reduce the amount of personal cash needed to invest, as these tasks provide evidence for constructive conversations with lenders or key creditors such as HMRC. This can result in repayment schedules being renegotiated to match peaks and troughs in revenue, or further restructuring and refinancing of the balance sheet.<\/span><\/p>\n The UK construction industry has a significant number of smaller businesses, many of which are owned and operated by families. When a business falls into distress, it is understandable when emotions take over; as such, an unbiased and thorough review is more important than ever. If more companies did this, more might survive, personal cash might not be needed, and many might go on to thrive.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":" Vijay Merchant is a partner at consultancy BTG Advisory When construction firms face tough times, the founders or families that own them often deliberate on whether they should use their own funds to prop the business up. But before investing, they must consider what strategic and leadership changes are needed for the company to survive …<\/p>\n","protected":false},"author":1,"featured_media":531160,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"ep_exclude_from_search":false,"footnotes":""},"categories":[552,567],"tags":[],"class_list":["post-532880","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-financial","category-opinion"],"yoast_head":"\nAssessing the risks<\/h3>\n
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