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Carillion: Small firms' support ends in 48 hours
http://www.bbc.co.uk/news/business-42695661
Then up to £250m is outstanding to suppliers who will not get paid. This will impact on people in this industry as your suppliers will be amongst those affected and some will disappear. Unfortunately there is no guarantee that another large UK or overseas supplier will not step in where Carillion left off.
This is a lot of money to come out of the UK economy in general but in part the landscape industry.
Andy Bradley of flora-tec has just been on lunchtime news saying that his business is now seriously at risk.
One important question comes to mind....why rely on one source of business so heavily that a whole business can be lost when this reliance goes wrong?
Whilst I agree with you there are two reasons:
1. Hindsight is a wonderful thing!
2. As the largest player in the market, and seemingly supported with more government contracts how else does a supplier react. If they keep ordering it is very hard to say no I need to balance my business by getting other new customers when the order is there on the table. Such is the scale of the operation at Carillion that in these difficult times suppliers would have readily accepted the orders until the point of no return. Sadly they will now be st the bottom of a very long list.
If it had been a crash in fortunes then I'd agree that it's easy in hindsight but Carillion reported profit warnings in the middle of last year:
"July 10, 2017
The chief executive of Carillion quit as the group warned on full-year profit and said it was pulling out of three construction markets in the Middle East. The company also said payment problems on four construction contracts nearing or reaching completion had forced it take a provision of 845 million pounds."
https://uk.reuters.com/article/uk-carillion-restructuring-dates-tim...
Were so many businesses under the impression that being underwritten by the UK government made Carillion too big to fail?
The knock on effect already getting wider:
"Speedy Hire takes a hit
Shares in Speedy Hire also fell in morning trading, dropping 5.7 per cent as analysts warned of the impact of Carillion's collapse on the company.
"In 2017 Speedy renewed a supply contract with Carillion and at the time indicated that in total it could be worth up to £45m over three years," said analysts at Liberum.
"This would imply annual revenues from Carillion of up to £15m, or 3.8 per cent of our current full year 2019 revenue estimate (£394m), making it is one of the group’s largest clients.
"As a result, we would see today’s announcement by Carillion that it has entered into compulsory liquidation as an unhelpful development."
http://www.cityam.com/278789/galliford-try-and-balfour-beatty-both-...
Andy Bradley is the managing director of Flora-tec, which is owed £800,000 by Carillion for landscaping services.
"The government actively encouraged businesses like mine... to get involved in public sector contracts, to make sure the little guy got a slice of the pie.
"When Carillion started to get into trouble last year we were considering that we would scale back our involvement with them.
"However... the government continued to give them billion-pound contract after billion-pound contract and that said to me, as a small supplier, that the government had done their due diligence.
"We were following the government lead... only to be given a sucker punch.
"I had to make 10 people redundant yesterday. That's 10 people with mortgages, car loans, all that stuff. It's an absolute disgrace."
http://www.bbc.co.uk/news/business-42703549
I think Carillion is yet another example of businesses not having high enough profit margins to satisfy cash flow. From what I hear some of their operations were working on the finest margins possible (ie 1 or 2%) which is obvious that that would cause cash flow problems.
As for some of the contractors who are worried about going under because of the demise of Carillion, if they had used good business sense and only taken up-to 5% of their turnover from Carillion, they could have weathered the storm. But if a business has more than 25% of its revenue coming from a single supplier, and the supplier goes to the wall, the results will be catastrophic.
In every business school this rule is taught (don't go over 5%), so how many of the sub contracting companies employ staff that went to Business School???
I can see some of the smaller sub contractors going bust as carillion have a 120 week payment policy, with there staff costs and materials I think it is likely
usually HMCE get there money first, and they have already said other contractors will only get 1p in the £ if they are lucky. It will affect thousands of folk especially in the short term