There were 656 construction insolvencies in Q4 2011. When the
statistics for Q1 2012 are published, the name S Barratt & Co
(Manchester) Limited will feature. For more than 75 years this
family-owned business, trading as Barratt, completed projects in
the commercial, retail, industrial and large-scale residential
sectors. So what went wrong?
Well, of course, the economic downturn played its
destructive role. And, in the more recent past, weakening
Government support for solar farms doubtless added to their woes.
Financial embarrassment was first evident when their 2010 filed
accounts turned red - with pre-tax losses of nearly £1.3M most
prominent.
Converting the accounts into ratios, their DSO - a
measure of the average number of days that a company takes to
collect revenue after a sale has been made - increased year-on-year
by 42% to 104. Problems were building and, in 2011, serious
pressures on cash flow triggered their demise into
administration.
Administrators from Duff & Phelps were appointed on 29
November last year with the loss of 43 jobs. Their report tells us
that "three large contractors" submitted Withholding Notices
amounting to £3M and this, coupled with the (sadly predictable)
withdrawal of solar contracts, sealed their fate. Despite
redundancies and cost-cutting, no buyer could be found by the
administrators, the business could no longer pay its debts as they
fell due, and it was declared insolvent.
Now, sub-contractors and suppliers are owed more than £2M
and the report tells us there "may be sufficient realisations" for
non-preferential creditors. Let's hope it's more than just
pence-in-the-pound.
What can you learn from this sad story? There are industry
statistics that can provide a generic trend about your buyer's
sector - the Office of National Statistics (ONS) is a good source -
it tells us that 5,000 construction companies have been lost in the
past two years. Most experts agree that cuts to the Government's
capital programme and uncertainty around the economy and financing
generally means there is little chance that 2012 will see this
trend reverse.
Moving from the generic to the specific, a Graydon credit report will reveal
your buyer's accounts and ratios which it will interpret into a
rating or score. Their historic rating or score is also included
and a trend is revealed. Comparisons of your buyer to their
industry sector complete the risk profile. But finally, in the
words of Aristotle, it's worth remembering that "the whole is
greater than the sum of its parts."
