Business intelligence firm proposes three-point survival plan for firms at risk
One in 10 m&e contracting firms are at risk of going under unless they take drastic action.
Analysis of the top 1000 m&e contracting firms by business intelligence specialist Plimsoll Publishing suggests that it is not too late to save many of the 104 firms it rates as being at high risk of failure.
But the new report comes with a warning: if these firms are to survive, they must start to fix their problems now.
David Pattison, senior business analyst at Plimsoll, says these companies must do certain things to ensure their survival.
“Going into administration should be viewed as a clear last resort. The damage done to the long-term health of the firm in terms of the brand and negative publicity are all too difficult to recover from.
“In essence, the key to avoiding administration is to put in place yourself the measures that the receiver would instigate.”
Pattison has put forward a three-pronged strategy.
Cut costs now
“This is not easy. It means the company must accept it will be a smaller enterprise. Internally this will not be well received in the organisation, as job losses will be part of the plan.
“It then needs to look at a survival plan and adopt the mindset of a receiver, cutting out non-profitable contracts, reducing overheads and also renegotiating with key suppliers. The objective must be to reduce the level of debt and get the business back on an even keel.”
Sell firm or seek investor
“Despite the doom and gloom in the market, this option should not be ruled out. In the sector we identified 537 firms that have cash to spend and could easily afford to finance a purchase out of cash.
“There are 104 companies in danger that are very vulnerable to an aggressive takeover, yet my view is there could be a great benefit in selling up. A new owner would give the company time and resource to turn its performance around.
“Sadly again, this will inevitably involve job losses and reducing the size of the company to rejuvenate it.”
Trade way out
“In the current economic climate this is the least likely strategy. Most of these 104 companies have fairly long-term problems, so it is clear their current business is not competitive in the market and simply doing the same will not change anything.
“Combine this with the inability to raise extra finance, and time is not on the side of this approach. Only a few of these companies have this as a viable option.”
- The CIPS/Markit UK Construction Purchasing Managers’ Index for February indicated a sharp contraction of the UK construction economy. The index fell to 27.8. Total business activity fell at an unparalleled rate in its history.
Electrical and Mechanical Contractor