Welcome to the Close Brothers Asset Finance review of the Construction sector. In this document we highlight a wide range of issues relevant to SMEs in this industry.
The results are based on the Close Brothers Business Barometer, a quarterly survey of close to 1,000 SMEs across the UK conducted by specialist independent researcher, GMI on Close Brothers’ behalf.
Where relevant, comparisons are made with national sentiment.
The commentary in this review focuses on:
- Economic outlook
- Knowledge of alternative finance
- Access to finance
- Succession planning
- Gender diversity
- Workforce mobility
Construction SME business owners are cautiously optimistic about the current economic outlook, with 21% expecting a steady recovery and a further 30% feeling prosperity will come, but only slowly. Concerns remain among many; however, with 21% worried that the UK could slip into decline again and 23% still to see a true recovery; 5% feel the economy is worsening.
In terms of trading conditions, the majority of construction firms (58%) have seen no difference compared to 12 months ago; 14% say they are prospering while 16% say it’s ‘worse than ever’.
Looking ahead to the rest of the year, two thirds of businesses expect performance to remain static, while 13% predict growth and 10% contraction, with the remainder unsure.
When asked the question ‘has your business grown in the past 12 months?’ the following results were obtained:
Knowledge of alternative finance
Three fifths (60%) of Construction SMEs surveyed are unaware of alternatives to funding outside of traditional banking, with only 39% having heard of asset finance.
“While the asset finance industry continues to grow and alternative finance becoming more mainstream, it is clear more work needs to be done,” said Andrew Sagar, MD of the Construction Division at Close Brothers Asset Finance. “There are multiple products, ranging from hire purchase to refinance, that SMEs could be benefitting from without impacting their cashflow.”
Access to finance
In the Construction sector, the top three sources of financial support and advice are:
- Accountant: 31%
- Friends / family: 19%
- Financial advisor: 18%
The top three sources of funding are:
- Existing lender: 39%
- High street bank: 39%
- Family / friends: 18%
When it came to access to finance, 37% felt it was more difficult than a year ago, while 13% said it was easier, and 36% saying they had never had a problem getting hold of finance.
During 2016, 15% of construction SMEs needed additional finance, with 21% feeling it’s more expensive despite record low interest rates. 17% felt it was cheaper while the remaining 62% said it remained the same.
Looking to the 12 months ahead, just over a quarter (26%) of firms confirmed they would be seeking funding for business investment during 2017, with the most popular form of finance being a bank loan followed by an overdraft facility and family or friends.
Staffing levels, including Brexit impact
Only 2% of construction firms are planning on reducing headcount, with 24% expecting to increase the size of their workforce and 55% keeping their staff numbers at current levels; the remaining 19% are ‘unsure’.
“This is very encouraging because employment levels are a good indication of business confidence,” said Andrew. “SME owners are also confident in the skill levels of their existing teams with 70% of respondents answering ‘no’ to the question ‘would you say there is a skills shortage amongst your current employees?’.”
Brexit is currently not a major factor for construction firms, with 70% stating their hiring numbers will remain unaffected by the UK’s decision to leave the EU.
Cost of hiring is also a minor issue, with 91% of SMEs being unconcerned about the amount of money it costs to employ their employees. This left only 9% of respondents feeling that it was either a ‘significant’ or ‘major’ issue.
Almost one if every five (19%) construction SME business owners are concerned about who will take responsibility of their firm after their departure. The remaining 81% said this was not an issue for them.
“While 19% may seem low, it still tracks 4% above the national average,” said Andrew. “With so many construction firms being family-run, it should come as no surprise that for many owners this is something they worry about.”
Only 20% of businesses in the sector have a business continuity plan in place in the event of senior management leaving their business. This is the lowest figure for any of the Close Brothers Asset Finance sectors.
Over two thirds (68%) of businesses surveyed would not class themselves as being ‘gender diverse’, compared to the national figure of 52%.
“Construction has traditionally been male-dominated; however, work is being done to redress the balance,” said Andrew. “And nearly half (49%) of firms in our sector don’t feel enough is being done to encourage women to take up a career in construction. This is encouraging because it means there is a recognition that more needs to be done, and it’s the highest figure among all the sectors we serve and significantly above the national average of 35%.
“Nearly a quarter (23%) of construction firms are now actively striving to recruit women, which means that companies are now taking it upon themselves to do something about gender diversity.”
The following results were obtained when asked the question ‘is it important to encourage more women into your sector?’:
|Yes, there are not enough||32%||40%|
|No, because they are well represented||52%||29%|
|No, because it’s not important||15%||31%|
Well over half (56%) of construction workers would be classed as ‘mobile’, reflecting the nature of many employees in the industry. In addition, 43% of SME owners felt it was important for their workers to have access to data ‘on the go’, with 27% saying it was unimportant; the remaining 30% were undecided.
“These statistics reveal a lot about the changing nature of our work patterns,” said Andrew. “Access to data from smart devices is making it easier and more affordable to have workers out of the office and on site, but still with access to the information they need. Construction firms have been quick to adopt new technology and ways of working, with 28% investing in a mobile application that gives them access to company data on the move.”
Nearly half (49%) of firms don’t feel mobility increases productivity against 30% who do (the rest are ‘unsure’).
“Although businesses have given employees access to data and information from their phones, there isn’t the implicit expectation that it must lead to an increase in productivity,” said Andrew.