Avoiding Developer Disaster

It never ceases to amaze me how small our world is becoming. Who would have thought events in the American sub-prime mortgage market would have such an effect on our UK banking sector' When was the last time you heard of a run on a UK bank' Am I dreaming' And, what does this actually mean for the UK construction sector'
 
 

It never ceases to amaze me how small our world is becoming. Who would have thought events in the American sub-prime mortgage market would have such an effect on our UK banking sector? When was the last time you heard of a run on a UK bank? Am I dreaming? And, what does this actually mean for the UK construction sector?

 
Most of the banks in the UK are becoming nervous and have already tightened their loan criteria in response to the US financial debacle. I am not just talking about homeowners. Developers need to beware. There are already signs of an inevitable slowdown in activity and a credit squeeze. The prospect of falling house prices will have many a bank manager reaching for the valium and planning to call for the return of his umbrella just as the storm clouds are starting to gather on the horizon.
 
It is a fact that borrowing money in a rising property market is far easier that in a declining one. Bank managers are not stupid. They know that in an rising market, even if the Developer’s estimate of construction costs is overly optimistic or if problems are encountered on site, the attendant costs will be more than covered by the increased revenue arising from increasing sales prices. But, when the market turns, the same bank manager will know that over-optimistic cost estimates and un-foreseen problems can spell disaster for the Developer.
 
And it is not just Developers that are feeling the pinch. Many Contractors and Sub-Contractors are reporting problems and it is no coincidence that many of the larger firms of accountants are currently expanding their corporate insolvency departments. I wonder why?
 
So, why then do so many companies fail in the UK construction sector?
 
Inadequate sales, reduced margins, poor cash management and contractual disputes are all symptoms of a failing business operating in the construction sector.
 
But do these symptoms mean that a corporate disaster is inevitable? And if your business is suffering from any of these complaints what, if anything, can be done about it?
 
It is a fact that people rarely want to talk about business problems. It is simply not in our nature. However, it is the failure to recognise problems and take appropriate advice quickly that is the single biggest cause of company failure in the UK, not the problems themselves.
 
If this sounds like your company please don’t leave it too late. It is a simple fact that the range of options available to cure a sick business, and there are many, simply dwindle away with the passage of time.
 
Peter Vinden is Joint Managing Director and Chairman of Vinden. His firm offers a range of options to help sick busineses operating in the UK construction sector. He can be contacted by email at pvinden@vinden.co.uk
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