25 March 2022

Construction company collapse signals warning to others

| RSM Australia
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The construction of a large casino being built in Singapore

Construction companies are urged to take notice as a leader enters administration. Photo: RSM.

One of Australia’s largest construction companies, Probuild, was last month placed into voluntary administration despite having $5 billion in building projects underway.

Reportedly owing huge amounts of money to subcontractors, Probuild employs hundreds of tradespeople but now faces an uncertain future.

It’s not the first collapse of a reputable construction company in recent years – and RSM partner of the national restructuring and recovery division Jonathon Colbran warns it won’t be the last.

“The sector is under enormous pressure with delays due to lockdowns and increased labour and material costs,” Jonathon says.

“We’ve been urging construction company owners to consider these factors for some time, while many have more work than they can handle, it doesn’t necessarily mean the business is profitable.”

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As Probuild explores options for a restructure and turnaround, Jonathon encourages Canberra construction companies to pause and reflect on the sustainability of their own businesses.

“It’s rare for a construction company to collapse due to a lack of work,” he says. “Usually, it’s issues such as difficulty managing cashflow, under quoting, unapproved variations, or legal disputes involving directors, customers or subcontractors.

“But right now, there is the added weight of building delays, supply chain disruptions, and ever-increasing material costs.

“Perhaps the company quoted a job early in early to mid-2021 that is currently under construction, and the price and time to secure materials is well beyond what it was back then. These are circumstances very few people could have planned for and margins are getting squeezed.”

Jonathon Colbran, Frank Lo Pilato

RSM in Canberra partners Jonathon Colbran and Frank Lo Pilato. Photo: Thomas Lucraft.

Fortunately, there are steps construction company owners can take to regain control.

“The first is to take a hard look at contract structures, project incomings and outgoings, and potential risks,” Jonathon says. “Your trusted business advisor, who is typically your business accountant or bookkeeper, is often your first point of contact when you need help.

“They can assist with this process, and may recommend a financial audit which is a great way to get a ‘cost to complete’ figure and balance it against income projections so you can act quickly if the two don’t marry up.”

Where it’s clear that your business is financially stressed, Jonathon says knowing the options available will help you take early action and reduce potential damages, including to your personal assets.

“If your business advisor feels you should explore a plan B and look at all your options, they will often recommend you contact a restructuring expert like us to confidentially speak with you about your options.

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“A restructuring expert will regularly conduct cashflow reviews and put together an Options Report if the business is struggling. An Options Report considers the current challenges the business is facing, so we can map out the various options available to restructure or turn around the business.

“Even though it may seem easier to keep pushing on and hope things will get better, the consequences of waiting can be devastating, as we’re now seeing with Probuild’s clients, employees and subcontractors.

“It doesn’t cost anything to start a conversation, and you might be surprised how far genuine guidance can go in helping you make important and time-critical business decisions that affect your future and the future of your business.”

To book a free business health check, or speak with a restructuring and recovery expert about any challenges your business is facing, contact RSM in Canberra on 6217 0300.


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