iscoverI've been liquidating businesses for over 30 years, and I can tell you something that should terrify every accountant with construction clients: construction has always topped the failure charts, and it's getting worse.
Beyond compliance: Why are accountants letting construction clients fail?
18 August 2025
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13 minute read
Data from ASIC tells a frightening story. In 2005, construction made up 20.1 per cent of all corporate failures in Australia. For the next 15 years, it hovered consistently around 20–24 per cent. But look at what's happened recently: 25.5 per cent in 2022, 26.1 per cent in 2023, and 28.3 per cent in 2024.
Construction failures aren't just persistent, they're accelerating.
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Let me put this in terms that matter to your practice: if you have five construction clients, you can statistically expect to lose at least one of them.
But here's what should really concern you: the problem is getting bigger in scale. Back in 2004–2005, 54 per cent of failed construction companies had liabilities under $250,000. By 2017–2018, that dropped to 39 per cent. Meanwhile, companies with liabilities between $250,000 and $1 million jumped from 30 per cent to 36 per cent.
Translation: it's not just more companies failing, it's bigger companies failing, with larger impacts on creditors, employees, and yes, their accountants.
Here's what really bothers me: the reasons for failure haven't changed either. Poor financial control, cash flow problems, trading losses, strategic management failures.
The same predictable list, year after year.
So here's the question that should keep you awake at night: if construction failures are this predictable, why are accountants still acting surprised when their clients go under?
The predictable pattern
When I walk into a construction liquidation, I could write the failure report before I open the books. The same reasons appear over and over:
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Poor financial control (30-35 per cent of cases)
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Strategic management failures (45 per cent of cases)
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Cash flow problems (39-49 per cent of cases)
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Trading losses (34-39 per cent of cases)
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Under-capitalisation (historically 25 per cent, though this dropped to 9 per cent in recent years)
What's more troubling is that this isn't new information. We have more useful frameworks than ASIC’s broad reporting categories.
For example, influential academic research from the late 1980s which analysed Dun & Bradstreet’s own data-grouped construction failures into five clear areas: budgetary issues (26.7 per cent of failures), heavy operating expenses (17.8 per cent), and industry weakness (22.75 per cent), among others.
Translation: nearly 45 per cent of failures stem directly from budgetary and operational expense issues. Factors that a competent, proactive accountant should be able to identify and help manage.
Yet we are still here, ignoring research that has been available for over 30 years.
The small operator problem
There's a reason construction companies keep failing for the same reasons, and it goes back to research from the 1970s that's still relevant today.
Small construction operators don't have sophisticated accounting functions. They rely on the CEO for everything, which means financial information gets manipulated. Not because they're unethical, but because they lack the systems and expertise to manage complex financial data properly.
Think about work in progress calculations. This is the single most important figure for construction operators, yet most treat it as a tax compliance exercise rather than a critical management tool.
I recently spoke with an accountant who told me about their builder client:
"He's always asking about minimising tax through work in progress calculations, but he has no idea what his actual job profitability is. He's flying blind on every project."
This represents a missed opportunity for real advisory value.
The ostrich strategy
I recently spoke with an accountant who told me about their construction client. A mid-sized residential builder with 40 staff and a pipeline worth $20 million.
"The cash flow's getting tight," the accountant said, "but they keep taking on new contracts. They say they need the deposits to fund current jobs."
I asked what advice they'd given.
"Well, we told them to be careful about cash flow. Maybe slow down new sales. But they don't want to hear it. They're focused on the pipeline."
This is what I call the ostrich strategy: stick your head in the sand and hope the problem goes away.
Here's what that accountant should have said:
"Stop. Right now. You're using new client deposits to fund existing projects, which means you're trading while insolvent. We need to have a difficult conversation about your options before this gets worse, because in six months, I might be handing your files to a liquidator."
Uncomfortable? Absolutely. Necessary? Even more so.
The warning signs are there
Here's what frustrates me most: the warning signs for construction failure are well-documented and predictable. Research dating back to 1966 identified the key risk factors:
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The smaller the capital reservoir, the higher the failure probability
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The lower the profitability and cash flow, the higher the failure probability
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The higher the expenditure levels, the higher the failure probability
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The larger the interest-bearing debt, the higher the failure probability
These observations could form the basis of a simple risk management tool that every accountant should be using with construction clients. Yet most don't.
Instead, I hear conversations like this:
Accountant: "How's business?"
Builder: "Great! We're busier than ever."
Accountant: "That's fantastic. See you next year for tax returns."
Here's what that conversation should sound like:
Accountant: "You're taking on more work, but what's happening to your cash conversion cycle? Are you getting paid faster or slower? What's your work in progress position telling us about profitability?"
The difference? The first approach treats symptoms. The second addresses causes.
The macro-economic reality
Construction clients don't just fail because of internal issues; they fail because they can't adapt to changing market conditions. And guess what? Market conditions in construction are always changing.
Interest rates, material costs, labour availability, and regulatory changes. These factors create a constantly shifting environment that requires active management, not passive compliance.
Yet when I liquidate construction companies, the same story emerges: they were so busy working in the business that they never developed systems to work on the business.
This is where accountants should be adding massive value, but most don't.
What strategic advisory looks like
Stop calling it "advisory services" and start calling it "survival planning," because that's what it is for construction clients.
Here are the conversations you should be having:
Strategy testing: "You're planning to expand into commercial work. Walk me through how you've stress-tested this decision. What happens if the market contracts? What happens if materials costs spike again?"
Systems review: "Show me your project management systems. How do you track actual costs versus estimates? How quickly do you know when a job is going sideways?"
Cash flow management: "Your work in progress is telling me one story, but your cash position is telling me another. Let's figure out why and fix it."
Risk assessment: "You're operating on 30-day payment terms in an industry where payment delays are the norm. What's your plan when someone doesn't pay on time?"
These aren't optional nice-to-have conversations. They're essential survival tools.
A real-world success story
I remember presenting to construction industry groups during the Global Financial Crisis. One builder told me his story:
"Money was tight, and I noticed heaps of land blocks going up for forced sale in my area. I thought I was doomed because my pipeline was disappearing."
Instead of panicking, he got strategic. He bought distressed land blocks with partners, designed standard home plans that could be modified, and went to suppliers with volume commitments:
"I told suppliers: 'In the next 18 months, I'm building minimum 8 dwellings. I need bathtubs, toilets, kitchens. What's your best price if I commit to buying only from you?'"
The result? His most profitable trading period ever.
The difference between this builder and the ones I liquidate? He thought strategically about his market position instead of just hoping things would improve.
The opportunity cost
Here's what really gets me: while construction consistently represents 25 per cent of all business failures, it also represents one of the biggest opportunities for accountants to add real value.
The problems are known. The solutions are available. The demand is there.
Yet most accountants are too busy processing payroll and lodging tax returns to notice that their construction clients are heading for the same predictable cliff.
Every construction company that fails because "we should have seen this coming" represents a missed opportunity for real advisory work.
The framework for success
If you want to help your construction clients survive, you need to move beyond compliance and start focusing on the factors that actually drive failure:
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Financial control systems – are they tracking job profitability in real-time?
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Strategic decision making – do they have processes for evaluating growth opportunities?
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Cash flow management – can they accurately forecast cash position 90 days out?
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Risk management – how do they handle payment delays, cost overruns, and scope changes?
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Market adaptation – are they reactive or proactive to changing conditions?
These aren't optional extras. They're survival tools in an industry where failure rates haven't improved in 20 years.
The challenge
Look at your construction clients right now. How many can confidently answer these questions:
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What's your actual gross margin on current projects?
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How long can you operate if your two biggest clients delay payment by 60 days?
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What's your plan if material costs increase by 20 per cent on existing contracts?
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How do you decide which new projects to take on?
If they can't answer these questions, they're operating blind in an industry where one in four businesses fail.
And if you're not helping them find these answers, you're missing a significant opportunity to add real value and ensure your client doesn’t become another statistic.
The statistics haven't improved in 20 years because the approach hasn't changed. Construction companies keep failing for the same predictable reasons, while most accountants focus on compliance-based services.
But here's the opportunity: you can be the accountant who helps prevent construction failures instead of just processing the paperwork afterwards.
The choice is yours.
Eddie Senatore is a Fellow of CA ANZ with over 30 years of experience in business recovery and insolvency.
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