Five ways that small firms can beat the downturn

Rick Martignetti is manager, business funding, at Shaw & Co

Small and medium enterprises (SMEs) in the construction sector must remain optimistic, despite the unprecedented headwinds they are facing. The cost-of-living crisis, Brexit, the pandemic hangover, supply-chain issues, high energy prices, the war in Ukraine and a possible recession are among a multitude of factors having a hugely detrimental impact on SMEs’ revenues.

With profit margins being squeezed, businesses must now think strategically about the future and the challenges ahead. Here are five ways that small firms can beat the downturn.

If you are a small business that has experienced growth and are performing well, a few options exist. Strategically, merging or acquiring a business will give you greater revenue and a broader portfolio at your disposal, and thus greater expertise to win new contracts.

Indeed, size and scale are vital for a company’s long-term prospects in this sector.

Alternatively, if your business is performing and has a valuable proposition, but you do not have the stomach to live through another crisis, it could be time to start planning your exit.

Most importantly, although business valuations are still on the high side for decent businesses, it is vital that you take proper advice to ensure you get the best possible price – especially if you have already received an approach.

The government obviously invests huge sums of money into infrastructure projects such as HS2 and Hinckley Point C. Typically, larger companies are in a stronger position to win these projects due to their greater procurement capabilities and access to capital markets.

While SMEs can look to get involved, through building relationships with larger companies and sub-contracting work, these projects are generally for larger businesses.

It is therefore advisable that smaller businesses target local developments and projects of a more manageable scale. Schemes of a smaller scale that are repeatable or secured over a longer period of time will build more enterprise value than a larger, one-off project.

  • Alternative funding options

The asset-intensive nature of the construction industry naturally lends itself to banks and cost-effective asset finance. However, the contractual nature of the sector means organic-growth projects or acquisitions that rely on future cashflow to support funding are not generally something that banks are particularly keen on these days.

We find a lot of businesses still take a loan rejection from their bank as the end of their search for funding and do not venture into the alternative lending market, which is a much more welcoming space.

Access to alternative options beyond the traditional banks is essential, but requires more expertise than simply knowing a relationship manager’s phone number. This is where appointing specialist funding advisers can be invaluable, especially as this can create a significant competitive advantage over less agile competitors.

  • Investing in the right advice

Investing in the right advice can be critical to a company’s future success. Whether this is through the appointment of an experienced executive or non-executive directors or external corporate finance advisers, given the significant challenges ahead, it is important for businesses to act strategically with sound expertise if they are to sail through the headwinds.

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