Survey insights reflect high insolvency rates in construction industry

The construction sector experienced the highest number of insolvencies of any industry, according to the latest statistics from The Insolvency Service. The data, published in September, shows that in the 12 months to July 2025, there were 3,973 insolvencies in the construction industry, accounting for 17%.

Armstrong Watson’s 2025 Family Owned, Privately Owned and Owner-managed Business Survey included responses from more than 100 businesses in the sector and while the findings highlight that these businesses share many of the same challenges as other industries, they also face distinctive vulnerabilities rooted in their structure, decision-making culture, and legacy practices, which could lead to signs of financial distress.

Key challenges and pitfalls facing family-owned construction businesses

1. Cash flow problems

Delayed payments, slow client certifications, and retentions can starve firms of cash. It is true that most insolvencies are caused by a lack of working capital, not profitability. Our survey showed 34% of construction businesses are concerned about cashflow and having enough to pay outgoing over the coming 12 months. If limited use is made of cash flow forecasts, it makes planning for dips in cash availability difficult to achieve.

2. Fixed-price contracts and rising costs

Many companies have to operate on the finest of margins to win a contract, so even one bad job can push them into losses. To keep staff busy or avoid layoffs, there is a tendency to bid on riskier jobs without adequate cost checks. Estimating is often done informally or based on intuition.

3. Labour shortages and skills gaps

The survey highlights that two-thirds of construction firms find it difficult to recruit new employees. Brexit reduced access to EU labour. Generally, the industry struggles to attract young workers due to its image and working conditions. Skilled trades such as bricklaying, plastering, and scaffolding are in high demand but short supply, which drives up wage costs.

4. Informal financial controls

Many family businesses rely on trust, loyalty, or tradition, rather than data or professional financial systems. Without clear financial data, companies can overcommit or fail to spot underperforming projects. Our research highlighted that 39% of respondents in the sector (above the national average of 30%) still use manual systems, which can be time-consuming, and information can quickly become outdated.

5. Overexpansion and risk of taking on too much work

Scaling too quickly or juggling too many projects can stretch resources thinly. Upfront costs - materials, hiring and overheads - must be met before revenue comes in. It is clear that strong planning and management are required; however, our findings indicate that the adoption of cloud-based technology for core business functions, which can prove crucial to support decision-making, is slow, and this may be because it is considered that the size of the projects can be managed by experienced management, with limited technology.

6. Supply chain disruptions

These problems can hit any size of construction company. They include delays in payments from main contractors, health and safety issues, utility hook-up waiting times, and material shortages. Adverse weather can also halt progress. This can lead to companies carrying fixed costs in times of inactivity, which can lead to cash flow problems.

7. Increasing cost of building regulations compliance

The Building Regulations 2010 set out a plethora of requirements for construction, including structural integrity, fire safety, energy efficiency, and accessibility. In addition, there are planning permission regulations, building control approval, certification of work done and health and safety rules. Keeping up to date with regulations and staying compliant is a huge job, especially for smaller firms with limited resources. Non-compliance can result in fines or legal action, so this is a critical area for investment.

8. Lack of succession planning

Many family businesses have unclear succession plans. More that 80% of construction business survey respondents are over 55, and 42% wish to pass the business on to their children, or other family members. However, we can see that a large proportion of those family members are currently not employed in the business. This leads to a risk that the next generation will be underprepared for the challenges ahead.

How can construction companies ensure financial resilience?

There is no doubt that these are challenging times for family-owned construction companies. However, our survey shows that well-run businesses can continue to be profitable and create reserves to fund expansion and invest in the technologies that will improve the operational efficiency of the business.

Business owners should:

• Maintain close relationships with their accountant, ensuring timely and accurate management information is available
• Explore salary sacrifice schemes as a means of improving salary packages, whilst reducing employment costs
• Consider senior staff retention mechanisms such as Enterprise Management Incentives
• Use an experienced quantity surveyor to ensure contracts are accurately priced and are well managed
• Have a mix of work to reduce the risk to their business if a client becomes insolvent - don’t rely on one or two big clients
• Engage specialist lawyers to review all contracts, which will allow for variations, delays, and claims, again looking to reduce the risk to the business if all does not go to plan.