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SMEs 'more aggressive' on business management in face of economic woes

Smaller construction firms are being more aggressive in the way they manage their business as turnover continues to rise and fall in the face of economic uncertainty and government cuts, new research has found.

Bibby Financial Services has provided Construction News with its Business Factors Index which measures the turnover of its 280 construction clients, who vary in size and age from new start-up to £20 million.

The index, with an average turnover of around £2m, uses January 2007 as the 100 point benchmark.

Bibby Financial Services construction specialist Jason Heath said: “Far-reaching economic challenges have played a key role in the peaks and troughs of the index readings and therefore in the turnover of these firms.

“Construction contracts for those companies involved with the Olympics officially started in May 2008, which has created a steady stream of work for some sections of the industry.

“Despite specific pockets of growth opportunities for the industry, the effects of the credit crunch and the subsequent recession hit the construction industry hard in January 2009 and subsequently, that month gave the lowest index reading since it began in 2007.”

Additional research by Bibby has found that construction firms were among the most aggressive when it comes to minimising the effects of the downturn, with almost two-thirds employing cost-cutting strategies, 13 per cent increasing their prices, 37 per cent managing debt more stringently and 39 per cent improving the way in which they manage their suppliers.

Meanwhile, one in 10 companies are spending 25 per cent of their time each month chasing late payments - almost double the number recorded 18 months ago, when 7 per cent of firms were spending more than a week each month chasing overdue invoices.

Mr Heath warned the true effects of government public sector cuts are likely to be felt throughout 2012.

He said: “One reason for this is that as projects for construction companies come to completion, new contracts will be reduced, making the market more competitive for construction firms vying for work.”

Amid concerns the eurozone crisis could push Britain back towards the brink of a second financial crisis, one in five firms surveyed believes the effects of the financial downturn could be felt for the next two years.

Click on the graph to enlarge

Bibby Financial Services Business Factors Index 1

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