Many companies in the construction sector will have breathed a sigh of relief when Labour was re-elected, not because of any stance, but because it should mean renewed commitment to public spending projectpolitical s promised during the previous term of government.
Public sector projects such as roads, schools and hospitals were on target to account for 45 per cent of all construction work last year, but the figure fell (and continued to fall) in early 2005 as projects were delayed or put on hold.
Commentators believe this was due in part to the government tightening the reins on public spending in the run up to an election so it would not be forced to put up taxes.
However, many construction businesses had already geared up in expectation of heavy workloads, so delays triggered fears of an increase in major business failures in the sector. The issue should be a salutary lesson to any business not to over-extend itself on the promise of work, and instead wait for a signed contract or money in the bank.
The danger of such over-optimism is not restricted to the construction industry. Suppliers to the retail sector should also proceed cautiously over the coming months when chasing orders from shops and stores.
A number of major retailers, including big names such as Boots and Marks & Spencer, have delivered lower than expected sales figures in the past couple of months, reflecting a widespread dip in consumer spending.
Earlier this year, the British Retail Consortium (BRC) said that UK retail sales fell by the largest amount in a decade during April. Like-for-like sales slipped by 4.7 per cent against the same month in 2004, partly due to the fact that the Easter trading period fell in March this year.
The drop was the biggest since BRC records began in 1995, and a larger slump than the previous worst figure of minus 4.6 per cent in April 1999.
Earlier this year the department store chain Allders collapsed after many years of service on the high street. An interesting fact about the Allders situation is that, despite the speed of the public announcement of the store’s demise, some of its suppliers had been warned about possible problems months in advance.
To protect their finances many of Allders’ suppliers changed their trading stance, withdrawing extended lines of credit to the store and in some cases demanding cash up front for deliveries. It was a risky strategy as the store could have gone elsewhere for its goods, but when Allders finally went down the pan, those suppliers who played tough with their credit management suffered fewer losses.
As with the construction sector example, this shows the importance of not counting your chickens before they are hatched. British businesses tend to pursue a ‘sales at any cost approach’, with credit and risk management falling down the list of corporate priorities.
But when the economic situation is as tight as it is currently, keeping a firm control of your invoices and debtors could be the difference between solvency and failure.
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