Financial giant KPMG has warned that some construction businesses are attempting to operate with too little cash to keep them afloat.
Falling profit margins has led to some construction businesses running with unsustainable levels of cash.
Research from KPMG revealed that the average margin companies were operating at in the sector in 2013 was 1.2 per cent.
Richard Threlfall, the UK head of infrastructure, building and construction for KPMG said: “Construction contractors have been struggling with some of the most difficult market conditions ever encountered and even now – with all evidence pointing to sustained recovery – the industry faces real profitability challenges.
“Current margin and cash levels are unsustainable.
“With subcontractor rate increases and labour market shortages largely outside of contractors’ control, it is critical they continue to focus on improving their own efficiency.”
KPMG also stated in a ‘Construction Barometer’ report that an increase in the number of orders in construction should improve the financial health of the industry over time.
The report stated that: “The 2013 order books are up on previous years, and … the committed and planned spend in the sector over the coming years is significant, with some £45 billion anticipated in 2016 in infrastructure alone.
“Ultimately, it will be the composition of these orders, both in the margin they deliver and their timing, that will drive change to the bottom line.”
Difficult trading in the construction industry is expected for at least the next year before “the growing demand in infrastructure” starts to show increased profit margins and improvements to “the bottom line”.
Threlfall concluded: “With good forward planning, strong businesses should be investing now in their supply chain and technology to take advantage of the £45 billion a year tidal wave of future work.”