Supply firms threatened by collapse of Rok and Connaught

FALLOUT from the collapse of construction firms Connaught and Rok threatens the survival of many more small firms in the West Midlands, accountants RSM Tenon has said.

It warned after Wolverhampton kitchen company Chamois Furnishings went into administration following the demise of the two firms, other companies in the service and supply chains could also face problems.

Bev Marsh, RSM Tenon’s corporate recovery director based in Birmingham, 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 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.”
 
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, added Ms Marsh.  
 
“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,” she added.
 
RSM Tenon said firms operating in the property and construction sector should make a few simple steps to try and insulate themselves from the fallout.

It said a good cash management system was vital, as was the keeping of records. Businesses should also rehearse the difficult conversations they could expect to face with suppliers, clients, customers, employees and financiers.