Bids being put in at below cost has put hundreds of SMEs in serious risk of administration a new report claims.
According to the report 1 in 6 SMEs may not be able to afford to pay short and medium debt if they were required to do so.
This is down to falling sales and wafer-thin profit margins which are damaging UK construction companies’ ability to operate in increasingly competitive markets, according to a survey by law firm Baker Tilley and Company Watch.
Almost 25% of SMEs suffered a 20% fall in sales last year according to the survey of over 2,500 construction companies with turnover between £5m and £25m. 33% of the companies revealed a decline in profit of around 50%.
Mark Wilson, partner at Baker Tilly’s restructuring and recovery unit said: “Although some in the sector may currently have the cash reserves to survive, we expect that for a number of players cash will run out as sales, and more importantly profits, continue to slide.”
“The short-term slashing of prices in order to win work does little to help the bottom line and is not sustainable in the long term.”
Recipro sourced this article from Building.co.uk