Not All Boom Times in Trades: Construction industry cautious

4 December 2014

Not All Boom Times for Trades

Construction industry more cautious on 2015

Despite the effects of the soaring Auckland housing market and the Christchurch rebuild, New Zealand’s construction and trades industry isn’t as buoyant as expected, with below average revenue growth and more conservative forecasts from local SME operators.

In the latest MYOB Business Monitor survey of over 1,000 business owners and operators nationwide, conducted by Colmar Brunton, 35% of SMEs in the trades and construction sector reported revenue growth in the year to August 2014 – below the national SME average of 39%. The figure was also below the industry’s own expectations, which saw 44% of trades and construction SMEs forecast growth for 2014 in August last year. Around 11% of the businesses included in the research were part of the trades and construction sector.

The number of businesses experiencing revenue losses in the industry over the last year was also higher than average, with 24% reporting their earnings fell in the 12 months to August 2014, compared to the SME average of 19%.

As a result, operators in the sector are more cautious on 2015, with 34% forecasting increased revenue over the coming 12 months (38% all SMEs), and 13% expecting revenue to decline (11% all SMEs). Despite the caution, however, trades and construction SME operators are currently enjoying a strong quarter, with 44% reporting more work in the pipeline, compared to 36% of all SMEs.

MYOB NZ Sales Manager Business Division Scott Gardiner says the survey highlights that despite all the coverage the housing sector has been getting, many in the trades sector are finding the environment more constrained than might be expected.

“You might get the impression that business is booming right across the trades and construction industry at present,” he said.

“However, the latest Business Monitor demonstrates that the picture for the whole industry is a little more mixed, with the twin engines of the Auckland housing market and the Christchurch rebuild not necessarily driving growth across the whole market and many smaller businesses not directly benefitting from the activity that is being dominated by the big firms.”

Financial pressures building
Mr Gardiner says the sector is also expecting some major pressures to start to bite – not only from the rising cost of fuel, but also increasing interest rates.

“What’s also telling is the number of construction and trades operators concerned about the time it takes to get paid and managing cashflow – a sure sign that conditions are becoming more challenging.

“Interestingly though, there seems to be no shortage of demand, with just 12% of operators expecting attracting new customers to be an issue in 2015, well below the SME average.”

2015 pressures on trades and construction SMEs:
1. Fuel prices – 33% (26% all SMEs)
2. Timing of customer payments – 28% (13%)
3. Interest rates – 24% (21%)
4. Meeting tax obligations – 22% (15%)
5. Cash flow – 21% (19%)
“With these pressures on the rise – especially around getting paid and managing tax – business operators in the sector could be taking practical steps now to reduce their effect. This could include a range of measures, from more proactive debt management and revisiting terms of trade, to introducing accounting software systems to provide better tax and cashflow information.”

Investing in people
Even though demand is not an issue for the industry, few businesses are looking to expand, with the number of businesses looking to take on full time staff (13%) only slightly higher than the SME average (10%). Fewer will introduce more part time staff (12%) than the average (13%).

Although reasonably conservative on growth, over a fifth of operators intend to pay their staff more in the coming year.

Low online engagement
New Zealand’s construction and trades sector has one of the lowest levels of online engagement in the country, with 54% not operating a business website or social media site, compared to 47% of all SMEs.

“This is an area where more businesses could be looking to make the most of the opportunities of the internet,” says Scott Gardiner. “Most consumers now search online first for a local tradie – particularly in an emergency – so if your businesses isn’t on the internet, they are probably going to your competition.”

Of the trades and construction businesses with an online presence (website and/or social site), 49% said the site generated more leads, 44% said it made it easier for clients to do business with them, and 42% said it enabled them to present a more professional brand image.

“From everything we’ve seen and heard over the last few years, you’d be forgiven for thinking the whole trades and construction industry is experiencing a major boom. As we can see in these latest results, growth is much more uneven. This is important to recognise, not just for anyone associated with the industry, but also for policy makers as they consider initiatives designed to cool the local housing market.”

For MYOB product information, research results, business tips, discussions, client service and more visit the MYOB website, or its blog, LinkedIn, Twitter, Facebook, Instagram and YouTube sites.

About MYOB
Established in 1991, MYOB is New Zealand’s leading accounting software provider. It makes life easier for approx. 1.2 million businesses across New Zealand and Australia, by simplifying accounting, payroll, tax, practice management, CRM, websites, job costing, inventory, mobile payments and more. MYOB also provides ongoing support via many client service channels including a network of over 40,000 accountants, bookkeepers and other consultants. It is committed to ongoing innovation, particularly in cloud computing solutions, and now spends NZ$35+ million annually on research and development. For more information, visit myob.co.nz.

About the MYOB Business Monitor
The MYOB Business Monitor is a national survey of 1,000+ New Zealand small and medium business owners and managers, from sole traders to mid-sized companies, representing the major industry sectors. It has run since 2009, commissioned to independent market research firm Colmar Brunton. This most recent survey ran in July/August 2014. The Monitor researches business performance and attitudes in areas such as profitability, cash flow, pipeline, technology usage and the government. The weighting of respondents by both geographical location and sector is based on overall market proportions as established by Statistics New Zealand and is drawn from an independent survey group, which includes both MYOB clients and non-clients.

ENDS

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