Avoid the Pitfalls: Risk Essentials for Real Estate Agents
More than half of Australian real estate professionals say client expectations have intensified in the past two years.
For smaller subcontractors, it’s a different story. Insolvencies jumped 18% in 2024, totalling 1,431 cases as this snapshot shows:
- NSW led with 43% of these insolvencies
- Followed by Victoria at 29%, with
- Queensland at 17%.
These failures significantly impact larger firms. For instance, tier 1 business Lendlease incurred $50 million in costs due to subcontractor defaults. Kane Constructions faced $13.8 million in losses, revealing how subcontractor insolvencies create financial strain throughout the supply chain.
The rise in insolvencies is driven by high interest rates, inflation, labour shortages, and ongoing supply chain disruptions. For SMEs already operating on thin margins, these pressures are particularly acute.
The Domino Effect of Insolvencies
The construction industry’s reliance on subcontractors often has a domino effect. If one subcontractor collapses, it may trigger a chain reaction of failures across projects, increasing risks for all plays. Think delays and cost overruns. Despite their financial strength, larger construction companies are impacted, too, indicating how interconnected the industry has become.
Proactive Steps for SMEs
In spite of the uncertainties, there are steps your SME can take to maintain a resilient business.
Here are a few tips:
- Review and strengthen your financial management to withstand economic pressures, such as by reviewing your cash flow forecast, improving your billing procedures and debt recovery, having a robust emergency fund, and using tech for real-time monitoring.
- Collaborating closely with bigger contractors can ensure payment security and help stabilise operations. Look into the Australian Government’s Security of Payment laws for your state or territory, such as these for Victoria.
- Incorporate high-authority data, such as from the Australian Bureau of Statistics.
- Diversify suppliers, so you’re less vulnerable to disruptions. Services such as ICN, or, if you’re working in Victoria, the Construction Supplier Checklist.
- Upskill your workforce, taking advantage of government-funded training and support programs, such as this one for Western Australian businesses or those in Queensland, and
- Talk with us, as your broker or adviser, so we can customise insurance solutions to make your unique business and appetite for risk.
Insurance Strategies for Risk Management
Considering the current challenges this article has outlined; you can bolster your protection with insurance options including:
- Project delay insurance to minimise financial losses from timeline disruptions, and
- Liability coverage to shield against claims for incomplete or defective work.
- Trade Credit insurance protects your cash-flow by covering your losses if a debtor defaults on payment or becomes insolvent, giving you the peace of mind to focus on running your business. The security it provides may also boost your borrowing capacity with your bank.
Tailored insurance policies can help businesses manage these risks effectively while maintaining operational continuity.
Article Supplied by OneAffiniti
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