March 6th, 2018
Yes, I know I said that I was not going to write about Carillion again. But that was before Charles Orton-Jones wrote a punchy article in the Times on February 15 entitled ‘Five lessons Carillion can teach us all’.
You will recall my concern that some smaller businesses caught up in the Carillion insolvency would struggle in the event of another rise in the Bank rate – because the margins they are working on are so small. Well, according to Mr Orton-Jones tight margins also helped to do for Carillion. His first ‘lesson’ was called ‘Margins matter’ and in it he revealed that Carillion’s margin in the first half of 2017 was 1.6 per cent. “After an £845 million write-down of contracts, these tiny operating profits became an unmanageable loss. Carillion’s slimline margins made it a hostage to fortune. Even slight increases in costs would push a project into the red”.
We all know that the construction industry suffers from extremely tight margins, but come on; just because there is sometimes lots of zeros after the numbers doesn’t mean that this should hide the problems…
So, to my accountancy colleagues out there, I hope you are running the rule over your clients margins because even a modest rise in the Bank rate could create unsustainable pressure for some companies. Wafer thin margins just don’t cut it.