More small firms in the West Midlands already fighting for survival could still feel the impact of the collapse of construction giants Connaught and Rok, an expert has warned.
After Wolverhampton firm Chamois Furnishings went into administration following the demise of Connaught and Rok, Birmingham-based RSM Tenon said there could be further hard times locally.
Bev Marsh, RSM Tenon’s corporate recovery director based in Birmingham’s New Street, said that there were signs that the construction sector could further suffer in 2011.
She said: “What we are seeing in the construction sector is the result of a ripple effect right across the supply chain.
“When a large business fails, the knock on effect can be devastating as it can filter right through the whole industry – it is not uncommon for failures of businesses four or five levels removed from a large failure to occur 12 months or more later. Small businesses which supplied Rok and Connaught may well struggle to survive after their administration. We have already seen 57 jobs lost at the Wolverhampton-based eco Kitchen company Chamois Furnishings as it was owed more than £200,000 when Rok went into administration. This level of bad debt cannot be sustained very easily.”
Following the administration, former manager and founder of Chamois Furnishings Andrew Jones-Dutt said it was “like a row of dominos.”
He told the Post: “The implications of the demise of Connaught destroyed confidence in the sector and I have had several small contractors go bust on me already – when it went down, it took out companies which had an effect on me. It’s like a row of dominoes.”
The construction sector was hit hard in 2008 by dramatic reductions in work due to private property sector difficulties and is now being affected by proposed public sector cuts that will only take full effect well into 2011 and beyond.
Ms Marsh added said: “Confidence in the construction sector is also a very important factor – negative publicity can push suppliers to ask for quicker payment terms causing less working capital being available.
“Credit Insurance is also an important factor for this sector as there are only three key players in the market and if they withdraw the credit percentage or limit it, the cashflow within the business can also be severely damaged.
“In my experience, the construction sector is currently operating on tiny, if not, negative margins. Some firms are taking on contracts with negative margins for cash flow to try and sit it out.
“Unfortunately, it could be a prolonged period of difficulty and some may struggle to survive.”