Industry experts are urging the federal government to allocate funds for financial education for builders, citing statistics that reveal over 85 per cent of Australian operators rely on inaccurate financial reports from their businesses.
This alarming figure comes amid a backdrop of increasing insolvencies within the sector.
Data from the Australian Securities and Investments Commission (ASIC) indicates that 2,142 construction companies entered administration in the nine months leading up to March 2024.
Compounding this issue, the Association of Professional Builders (APB) found that only 13.5 per cent of Australian builders have a clear understanding of the Work in Progress (WIP) calculation, a crucial metric for assessing the financial health of their businesses and meeting tax obligations.
The 2024 State of Residential Construction Industry survey further revealed that less than a third (30.7 per cent) of builders produce monthly WIP reports.
APB co-founder Russ Stephens emphasised the importance of these reports as a vital check on the financial stability of their operations.
Stephens called on Treasurer Jim Chalmers to support builders’ financial literacy in the Federal Budget which was announced on May 14.
He believes this initiative would help reduce insolvency rates and bolster consumer confidence.
“What a lot of people don’t realise is that new construction is actually cash flow positive, which results in building companies holding hundreds of thousands — sometimes millions of dollars — of other people’s money in their bank accounts.
“This is why they need financial education to ensure they have the knowledge to fulfil that responsibility,” Stephens explained.
He pointed out that the WIP calculation is often misunderstood in the residential construction industry, as the term is interpreted differently by general accountants.
This misunderstanding contributes to financial mismanagement and subsequent business failures.
Various industry groups have submitted their proposals ahead of the Federal Budget, highlighting the critical issue of housing shortages, including a lack of rentals and social housing, amidst a rapidly growing population.
The government has committed to constructing 1.2 million new homes over the next five years as part of a $3.5 billion program in collaboration with state and territory governments.
Stephens stressed the need for a strong, reliable, and trusted construction industry to meet these ambitious housing targets.
He emphasised the importance of supporting established builders, given their central role in the housing rollout.
“About 50 per cent of residential building companies in Australia would not have their licences renewed if their true financial position was revealed in their year-end accounts,” Stephens noted, underscoring the urgent need for improved financial literacy.