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High risk construction

An interesting piece here on the plague of the “zombie companies”

The criteria for such businesses is defined as follows

According to R3, “zombie businesses” have four key characteristics: • Just being able to pay the interest on debts, but not reduce the debt itself; • In the event of a rise in interest rates, the business will be unable to pay its debt • Struggling to pay debts when they fall due; • Having to negotiate payment terms with suppliers.

But is this fair? Many an expanded thriving business will be experiencing al the above, most especially in the early years of trading. Growing pains are familiar but do they indicate long term failure? Not at all.

As ever the wider picture has to be considered. 

However there is one area that is highlighted as being vulnerable and probably rightly so

However, the construction sector has the largest proportion of businesses that are only able to pay the interest on their debts – 16%, which equates to 37,000 businesses.

Manning added: “Devastation on the high street is well recorded. Since the start of 2011, over 21,000 jobs have been lost from the failures of major high street names, but we are yet to see the volume of construction failures that we would expect.

“With many capital expenditure projects coming to an end, cuts in public sector budgets and work from the Olympics having recently dried up, we can expect to see some of these businesses fail. Construction may well be the next big casualty from this recession.”

One to watch

 

 

 

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