Three Tips for the Construction Industry in Challenging Times

Three Tips for the Construction Industry in Challenging Times

BDO's latest analysis of the construction and building sector reveals lower levels of activity and narrower profit margins compared to the past. In the upcoming year, we anticipate an increase in layoffs and unemployment, with more companies in the construction and building industry facing bankruptcy. The road ahead will be challenging. 


The industry is more resilient now. Significant consolidation and mergers in various segments have led to many companies becoming larger and more robust than in the past. This has made the industry less susceptible to fluctuations in activity. 

Nevertheless, it is expected that the challenges ahead will continue well into 2024, perhaps even 2025. 


Here are three tips to navigate these tougher times: 


1. Maintain Control of Your Finances and Liquidity 

Bankruptcies have been on the rise in 2023 and are expected to increase further. Rising capital costs, persistently high material costs, and increased labor expenses are putting pressure on the industry, impacting bankruptcy rates. 

Having a solid grasp of your financial numbers makes it easier to identify areas where cost-cutting is possible. Make informed decisions about your clients and suppliers, as bankruptcies on either side can be costly. Favor agreements with the longest possible payment terms from your suppliers and the shortest payment terms from your customers. 

Thorough liquidity management is always crucial, even more so in such periods as we are now experiencing. Stay in control of your financial balance and capital allocation. 


2. Ensure You Attract and Retain the Best Talent 

There is a growing shortage of qualified labor, particularly skilled tradespeople. To secure the required to expertise and talent in the years to come, several measures will be vital for industry players: 

  • Enhance the industry's appeal to women. 

  • Intensify adult education programs. 

  • Secure attractiveness across borders. 


In the short term, factors like inflation, interest rates, and uncertainty will reduce activity, freeing up capacity in the market. This means that for many businesses, difficult choices will be required: Retain expertise, or make it available to competitors. 

The market will always be vast, and the best will succeed. Therefore, it's crucial to ensure that you retain your top talent. Effective and targeted incentive models can be a tool to retain the best professionals. 


3. Be Prepared for Sustainability Reporting Requirements 

Several industry players will soon face extensive sustainability reporting requirements, and it's not limited to just the largest corporations. The construction sector plays a substantial role in societal development and has a significant impact on the environment. The industry faces considerable challenges and opportunities concerning sustainability. 

Presently, the most extensive sustainability reporting is undertaken by the largest companies, typically the first to meet the requirements. However, those subject to these requirements need information from small and medium-sized players as they are a key part of the value chain. As of the 2024 fiscal year, publicly traded companies more than 500 employees will need to comply with the new reporting rules, while larger corporations will have to prepare for reporting starting in 2025. In addition, numerous small and medium-sized enterprises will be affected due to demands from customers, banks, employees, suppliers, and other partners.