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Behind many fast-growing construction businesses is an owner-manager working longer hours, taking on more risk and facing increasing financial pressure despite rising turnover.
This case study explores how strategic financial and business advice helped one subcontractor move from unsustainable growth to long-term profitable stability.
The Client
We worked with this client from their inception, a construction business in the residential sector, supporting them to move quickly from a sole trader to a limited company, and taking on employees.
Established in 2019, the business experienced rapid growth, and had grown its turnover to approximately £750,000 within three years, working with developers across a range of residential projects.
On the surface, the business appeared successful. They were growing and continuing to win jobs.
However, behind this sat increasing financial pressure, operational strain and significant personal risk for the director.
The Challenge – When saying yes to everything adds pressure, not profit
Like many fast-growing businesses in the construction industry, the company had adopted a “say yes to everything” approach to secure work and build momentum quickly. And whilst this meant that turnover increased rapidly, profitability did not follow at the same pace.
The director was working significantly longer hours but seeing little financial reward. There was limited visibility over job margins, cashflow was becoming increasingly stretched and the business faced a genuine risk of overtrading.
Having never run a business before, the director was unaware of all the financial systems and management information needed to make informed decisions around pricing, staffing and growth.
So, as we prepared the accounts for year three, the first warning signs became clear. We immediately noticed profit hadn’t kept up with growth and flagged this first, which led to an understanding that:
- Margins were too low for the level of risk and workload involved
- Administrative processes had not kept pace with growth
- PAYE, VAT and financial controls needed strengthening
- The company structure exposed the director personally if things went wrong
- Year 4 was going to be pivotal to turn things around but they needed to act fast.
Without intervention, the business risked continuing to grow turnover while becoming financially weaker. The director later admitted that, had things continued in the same direction, there was a real possibility of losing their home due to the impact on personal finances.
Our Approach – Refocusing for sustainable growth
We worked closely with the director to challenge existing assumptions around growth and profitability.
Rather than simply focusing on increasing turnover, we helped the business understand which projects delivered sustainable margins and which were consuming time and resources with little return.
Key areas of support included:
- Reviewing financial performance and identifying profitability issues
- Educating on better management of pricing, margins and selecting the right work
- Supporting a strategic downsizing to reduce operational pressure and improve efficiency
- Assisting with PAYE, VAT and administrative processes to strengthen financial controls
- Providing ongoing advisory support and regular financial insight
- Restructuring the business to improve tax efficiency
- Reviewing remuneration planning, including director’s loan considerations
- Reducing personal exposure and improving protection should the company fail
The Outcome – Seven years on, a stronger business, continuing to grow
The transformation was significant.
By focusing on profitable work rather than volume alone, the business was able to reduce workload while improving overall profitability. Cashflow became more stable, financial reporting improved considerably and the company have been able to present themselves more effectively to lenders and investors.
Now seven years into trading, the business is in a far stronger position operationally and financially, with a clearer strategy for sustainable growth.
Most importantly, the director regained control – both financially and personally.
Key takeaways for construction businesses
Rapid growth can place enormous pressure on subcontractors, particularly where systems, pricing and financial visibility fail to keep pace.
This case highlights the importance of:
- Understanding true job profitability
- Monitoring margins and cashflow closely
- Avoiding growth for growth’s sake
- Putting the right tax and business structures in place early
- Seeking advice before problems become critical
For many construction businesses, turnover is often seen as the key measure of success.
Whereas, in reality, it’s sustainable profitability and cashflow that create long-term resilience and business success.
We’re here to help
Whether you’re in the early years of trading or well established but wanting to grow, we’re here to support you with everything from tax advice to cash flow management, raising finance and payroll. To find out more about support for SMEs across the building and construction sector, call one of the team on 0330 058 6559 or email hello@scruttonbland.co.uk
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