Research by Armstrong Watson has highlighted significant challenges facing family-owned and owner-managed construction businesses, as the sector experiences the highest insolvency rates of any UK industry.
With 3,933 construction companies entering insolvency in the 12 months to September 2025, accounting for 17% of all insolvencies (data from The Insolvency Service), the findings of Armstrong Watson’s 2025 Family Owned, Privately Owned and Owner-managed Business Survey provide crucial insights into why so many firms might be struggling to survive.
The survey, which gathered responses from more than 100 construction and property sector businesses, reveals that these companies share many of the same challenges as other industries, but also face distinctive vulnerabilities.
One of the most pressing concerns is cash flow management, with 34% worried about having enough funds to pay outgoings over the next 12 months.
Ed Connell, Restructuring and Insolvency Partner, says: “Delayed payments, slow client certifications, and retentions can starve firms of cash. Most insolvencies are indeed caused by a lack of working capital, not profitability. If limited use is made of cash flow forecasts, it makes planning for dips in cash availability difficult to achieve.”
Ed explains that this is exacerbated as many operate on the finest of margins to win contracts, so even one poorly managed project can push them into losses. The temptation to bid on riskier jobs to keep staff employed, often without adequate cost checks and informal or intuition-based estimating, compounds the problem.
Increased employment costs have also hit the sector, with 58% who have been impacted a great deal (15%), a lot (18%) or a moderate amount (26%), by rises this year in Employer National Insurance Contributions and National Minimum Wage (the rate of which will increase further in 2026 by 6% for 16-17-ywear-olds, 8.5% for 18-20-year-olds, and 4.1% for those aged 21 and over).
External pressures compound these internal challenges. 73% are concerned about inflationary cost pressures, and 39% identify rising costs impacting business viability as their primary three-year growth challenge.
Many are also struggling to recruit, with two-thirds who say they find it difficult to find new employees, with the main barriers being a lack of skilled or suitable candidates (46%) and difficulty finding people to carry out specific roles (28%), highlighting a talent shortage in the industry.
Ed says: “The sector has been particularly hard hit by reduced access to EU labour following Brexit, and 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. This is further hampered by IR35, or the off-payroll working rules, which present significant challenges to businesses given the complexity in determining a subcontractor’s employment status and the level of compliance required to be undertaken in reporting this, coupled with the potential financial risk or fines of making the wrong assessment.”
Construction businesses can also be hit by supply chain disruption – including payment delays from contractors, utility hook-up waiting times, material shortages and adverse weather – which can halt progress and lead to companies carrying fixed costs during periods of inactivity, exacerbating cash flow problems. Meanwhile, compliance with Building Regulations 2010 and associated planning permission regulations, building control, and health and safety rules places a significant burden on smaller firms with limited resources.
“Latent defects can also be a major risk for construction firms and can compound existing financial stress,” says Ed. “Defects may only come to light after a defects liability period ends, sometimes many years afterwards, which compounds issues around accountability. Defects are likely to involve multiple parties such as contractors, subcontractors and suppliers, and it is likely to be both time-consuming and costly to determine responsibility for the defects, as well as dealing with the actual remediation costs themselves.”
The survey reveals operational weaknesses, with 39% of construction firms – above the national average of 30% – still relying primarily on manual processes, meaning crucial financial data can quickly become outdated.
When it comes to succession, although 80% of respondents are over 55, 14% haven’t considered their exit plan, while others have not discussed succession plans with the next generation. With 43% intending to pass businesses to family members, this creates a risk that the next generation will be underprepared for the challenges ahead.
Ed adds: “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.
He explains that business owners should maintain close relationships with their accountant, ensuring timely and accurate management information is available, and consider using an experienced quantity surveyor to ensure contracts are accurately priced and are well managed.
Businesses should also look to improve recruitment and retention strategies to secure skilled labour, have a mix of work to reduce the risk to their business if a client becomes insolvent and stay informed about regulatory changes.
At Armstrong Watson, we have a dedicated property and construction team that can help business owners refine their business systems to reduce risk and improve profitability. We offer a free of charge initial review, which could provide an opportunity to take your business to the next level. Please call 0808 144 5575 or email help@armstrongwatson.co.uk.
