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Buy to let investors hiring property firms to refurbish homes should protect their finances by carrying out strict credit controls – especially if they are parting with up-front cash.
The latest figures from recovery specialists Begbies Traynor highlight that the number of property firms in financial distress is rocketing – with a massive 18% increase in the final third of 2010.
Property and construction firms traditionally falter in the winter – but bad weather, the VAT hike and general flat performance of the economy are combining to hit the sector hard.
Landlords with building projects or buying homes to let through a property sourcing firm need to impose strict credit controls to make sure their money is safe.
For instance, rather than handing over cash for materials, property owners should consider paying invoices direct to suppliers and negotiate milestone payments linked to measurable progress on a job.
Thousands of businesses struggling to stay afloat
Many council trading standards departments keep a special register of reliable and trusted builders – but even employing someone who is recommended is no proof of financial status.
In the construction sector specifically, the number of companies given a ‘red flag’ as experiencing ‘significant’ or ‘critical’ financial problems rose by 21% to 19,167 in Q4 2010, from 15,894 in Q3 2010, and year on year by 8% when compared to 17,736 in Q4 2009.
Nick Hood, partner at Begbies Traynor, said: “Over 33,000 construction and property services businesses are showing signs of financial distress in Q4 2010, making this the worst hit sector in the UK economy.”
According to credit profile company Experian, building and construction insolvencies are running at about 250 a month in the last quarter of 2010.
Across all business sectors, Begbies Traynor found the number of UK companies facing ‘significant’ or ‘critical’ financial problems has risen to almost 148,000, the first year on year increase for seven quarters.
Those facing ‘critical’ problems alone are struggling with nearly £53 billion worth of liabilities.
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