Preventing Bankruptcy in the Home Construction Industry - Research Proposal Example

Introduction

Most of companies in the United Kingdom are faced with the problem of bankruptcy. In almost every year, a number of companies are reported to have failed, some of which collapse mainly because of going bankrupt. Following a detailed investigation, this problem is likely to negatively affect the United Kingdom economic performance and so a need to incorporate appropriate measures to curb the problem. This research is intended to convince the government that Business Risk Consultants Ltd (BRCL) will help in solving the bankruptcy problem in the United Kingdom and so a proposal submitted to the government of the United Kingdom (Welman, Kruger, Mitchell &Huysamen, 2005).

Research objectives

Attaining the major goal of the research is not an easy task. Confusion may arise in the meantime of performing the study and so limit the researcher from meeting the major goal of the study. Research objectives are therefore helpful in ensuring that the study is performed towards the right direction. These are short term goals set by the researcher concerning the major research goal. Meeting the short term goals (objectives) is an indication that the research aim will be archived. Failure to meet any of the research objectives symbolizes that the study is not performed in the right way and so appropriate measures put in place before things become worse (Tobin, 2004). Following this study, the following are the research objectives.

• To determine some of the causes of bankruptcy in the United Kingdom
• To find out some of the indications that a company is going bankrupt
• To determine some of the ways in which bankruptcy can be prevented
• To determine how the bankruptcy problem affects the United Kingdom, economically

Research questions

Research questions are derived from the research objectives. They are meant to enable the researcher stick to the major research question that is how bankruptcy can be prevented in the United Kingdom (Singh &Nath, 2010).Following the derived research objectives, here are the research questions

• Which are some of the causes of bankruptcy in the United Kingdom?
• Which are some of the indicators that can help one know that a company is going bankrupt?
• Which are some of the ways that can be used to prevent bankruptcy in the United Kingdom?
• How can the bankruptcy problem affect the United Kingdom, economically?

Literature review

Understanding the origin of the problem is the best technique that can enable one to come up with the appropriate ways of solving it. According to a study by McNeill (2008), poor management is among the major causes of bankruptcy. Here, the author relates bankruptcy to poor performance of the company as when the company goes bankruptcy; it means that it has been performing poorly to an extent of realizing huge losses and so going bankrupt. Upon further investigation in this study, it was found that poor management is among the sole reasons that can make a company go bankruptcy. McNeill insisted that, managers are the ones who make decisions for the company. Even though the other members may contribute their ideas, managers are the ones who make final decisions. With poor leadership and managers with poor management skills, the company will be making poor decisions (McNeill, 2008). This poor decision making cannot lead the company towards success but instead to failure and so having the company experiencing bankruptcy.

Another reason for going bankruptcy was found to be the issue of providing false reports. As provided by McBurney (2005), this can be as a result of the individuals involved in auditing the company’s financial performance or as a result of the management as well. For instance, an audit firm may instruct less qualified auditors to perform the audit work. At the end, the audit reports may possess so many errors and so providing false results where a company may think they have performed well where actually they are not. On the other hand, the company managers may convince the auditors to provide false reports so as to show the company owners that they are doing a good job where in reality they do not (McBurney, 2005).Ones such behavior continues for some time, it is when the company performance becomes worse to an extent of becoming bankruptcy. Less skilled labor force was also found to be another reason that makes companies go bankruptcy. According to Peter (2010) company employees and the other members of staff are the ones involved in implementing most of the set objectives and strategies. These people must have the right knowledge and skills in order for them to meet all the desired objectives by the end of the working period. However, having most of them with inappropriate or less skills, it becomes hard for them to meet the expected results and so contributing poor performance which leads to bankruptcy (Kumar, 2005).

According to a study performed by Bowden in 2003, a company does not wake up and become bankrupt. There are some factors that can indicate whether the company is almost becoming bankrupt or not. It is therefore good for investors to always have a close look at the company in which they allocate their funds so as to avoid such problems ones they come. Following a detailed investigation, Risky found the following as some of the factors that can help one determine whether the company is doing well or almost becoming bankrupt (Bowden, 2003). When a company starts facing difficulties in settling its financial obligations, bear in mind that there a higher possibility for this company to go bankruptcy in the coming few years. For instance, a company may fail to pay off its loans as stated and within the required time. In some circumstances, it is evident that this company is not able to manage its financials well and so suffering financial difficulties (Ahuja, 2001). With financial difficulties, the company will not be able to smoothly perform their business operations and so an indication for bankruptcy.

Due to the financial difficulties where by employees are not paid well, lenders’ obligations are not met on time among others, the quality of products or services will definitely deteriorate. For instance, when the employee benefits are cut and the wage rate reduced, these employees will be discouraged from working as they used to do before. In fact, some of them will start looking for better paying jobs somewhere else. The rate of turnover may also increase leading to more difficulties on the company (Dominowski, 2007). As a result, customers will start receiving poor quality products and services and so another reason for going bankruptcy as the number of customers will also reduce. Reducing the level of wage rate and other employee benefits is also another indicator that the company is going bankrupt. According to Tobin (2004) if the company decides to reduce the level of income paid to employees in return to their services offered without any genuine reason, it can be understood that the company is facing financial stress and so seeking for ways of minimize the total expenditure. Also, some benefits like; house allowance, food allowance, traveling among others may be cut or reduced (Tobin, 2004). Such can also mean that the company is facing financial difficulties and so looking for means of covering their debts hence an indicator for bankruptcy.

When the company is facing financial difficulties, workers will be subjected to poor working conditions as they are trying to recover for the losses incurred. It is in these circumstances where the working hours will be increased. Instead of working for the normal 8 hours per day, some employees may be required to work for 10 or 12 hours claiming that the workload has increased. Another thing, this employees may be denied their freedom to go for holydays claiming that they must meet some specific targets by the end of that financial period. This is also another indication that the company is not doing well and so a likelihood of bankruptcy (Govaert, 2009). There various ways in which bankruptcy can be prevented. According to Bowden (2003), it was pointed out that there are various ways that can be employed to prevent company bankruptcy and so business success in the United Kingdom. As found in the causes, poor management and less skilled labor force are some of the causes of bankruptcy. This was found to be among the best preventive measures towards company going bankruptcy. By attending these mandatory credit counseling programs, managers and their employees become aware of the various ways of handling credit. As a result, they will be a position to use their credit well and meet the desired results from the borrowed money instead of wasting it. In addition, companies become able to settle their credit obligations with minimal difficulties (Ahuja, 2001). As a result, they will be in a position to perform their operations well hence low possibility of experiencing bankruptcy translating to better performance.

Incorrect record keeping is among the factors that can lead to a company experiencing bankruptcy. For instance, in the books of original entry, incorrect figures may be entered in the books of accounts. Also, correct figures may be entered but in the wrong sides o accounts. As a result, the company may see that they have highly improved in their profitability and so increase their expenditure in the name of expanding the business or improving the working conditions for their employees. As a result, the errors made in the original entry influences the company to spend more than the realized income (Furneaux, Bynner& Murphy, 2009). There is therefore a need for a company to ensure that accounting entries are made accurately in each stage so as to avoid such errors and so preventing the problem of bankruptcy.

As previously stated, wrong audit results mislead companies. Overstating the results may make the company understand that they are moving towards the right direction where in the real sense they may be experiencing losses. There is therefore a need for companies to ensure that they hire highly qualified and experienced auditors. This is to ensure that the audit done is correct and accurate and so no errors committed. Doing so will enable the company obtain truthful and appropriate results concerning their financial performance and so take the appropriate measures for improvement in case there is a need to do so (Kumar, 2005).According to McBurney 2005, relying only on the work of external auditors can also be misleading at times. In addition, most companies only hire external auditors ones per every financial period that is one year. What happens when the external auditors commits some small mistakes? How will the company know that they are moving in the right direction throughout the one year? Performing internal audit is therefore another way of preventing bankruptcy. These internal auditors will ensure provision of financial reports after short duration of time such as one month. In doing so, it becomes easy for the company to understand the trend of their performance. In addition, when the external audit is done, this company will be in a position to tell whether the information provided is true or false according to the reports obtained throughout the year (McBurney, 2005).

With the high levels of bankruptcy, it was found that many companies collapse and so the end of their businesses. As many companies collapse, few companies are left in the market. These few left companies are the ones that can provide job opportunities. For the collapsed companies, so many people lose their jobs starting from the top managers to the lowest level employees. The rate of unemployed people therefore increases in the economy. As a result, the dependent ratio increases as the unemployed will be depending on those with jobs. The highly increased dependent ratio reduces investments as most people will be using their income to meet their basic needs and helping those depending on them (McNeill, 2008). Consequently, poverty increases in the economy and so lowering the people’s standards of living. Another thing, the researcher found it helpful to find out some of the ways in which bankruptcy affects the economy of the United Kingdom. This was to point out or insist on the need for the government to employ all the corrective measures towards the problem and so avoid the problem from happening in the years to come. A study performed by Kim 2010 was therefore reviewed to find out some of the ways in which bankruptcy affects the United Kingdom economy.

Assuming a time where there are no jobs in the country, the levels of investments are low in that individuals can rarely save their money in banks or invest in securities, the amount of cash flow in banks will first reduce. Another thing, companies will be facing low level of equity finance as most people prefer holding cash for quick use (Singh &Nath, 2010). As a result, companies will face difficulties in accessing funds for capital purposes hence unable to expand their businesses or even perform the existing operations effectively. This will make the companies perform more poorly and so having more additional business collapsing. The number of unemployed people will continue increasing, increasing the ratio of those depending on others (Singh &Nath, 2010). From this trend, poverty will highly increase in the country, lowering the people’s standards of living and hence poor growth of the economy in general and so another effect of bankruptcy in the United Kingdom.

Lastly, it is important to understand the home construction industry and how it is affected by bankruptcy. According to Fowler 2002, the home construction industry is highly affected by the issue of bankruptcy. The author provides that most of the companies in the home construct ion industry have failed where others collapse mainly because of the problem of bankruptcy. It was found that most of these companies face challenges in meeting their financial obligations an indication for bankruptcy. However, it was found that corrective measures have been put in place to prevent such problems in the times to come so as to ensure success of such companies. From the same study, it was also found that companies from the home construction industry face several limitations that hinder them from performing their business operations effectively hence contributing their failure. First, it was found that most of their products face low demand as well as higher levels of competition given that there are many sellers in the industry. This presents a challenge specifically to the upcoming companies hence exposing them to a higher risk of failure.

Research methodology

Research hypothesis

Before performing the study, the researcher settles on a particular hypothesis. The study hypothesis enables the researcher to have a picture of how the study results can be. After the hypothesis generation, the whole study process is therefore aimed at evaluating the hypothesis where at the end; it will be accepted or rejected. There are two main types of hypothesis namely; null hypothesis and alterative hypothesis. However, the central view is always on the null hypothesis where the researcher is required to either accept or reject the null hypothesis. In this study, the researcher settles on the hypothesis that most of companies in the United Kingdom are faced with the problem of bankruptcy (Fowler, 2002). Following are statements of the two types of hypothesis.

Null HypothesisHo: Most of companies in the United Kingdom are faced with the problem of bankruptcy

Alternative hypothesisHa: Most of companies in the United Kingdom are not faced with the problem of bankruptcy

Methods of data collection

Both primary and secondary methods of data collection will be used in performing the study. Beginning with the secondary methods, reading books, journals, articles and internet websites will be the major method of collecting secondary information. In this way, the researcher will spend some time reading the different types of written literature in relation to the research problem, prevention of bankruptcy in the United Kingdom (Tobin, 2004). In doing so, the obtained findings will be noted down for further analysis.

Primary methods of data collection

Onto collecting primary data, questionnaire interviews will be the major method used. Here, the researcher will design a questionnaire with a number of questions concerning the research problem. All the questions will be short and clear for encouraging the participants answer all of them. In addition, the questionnaire will contain both open and closed ended questions. Thereafter, a sample of the study population will be selected and used as the major source of information. The designed questionnaire will be sent to each one of them via online platforms mainly social media pages. The respondents will be asked to answer the questions and submit their responses via the same platforms (Kumar, 2005). This will also be used for further analysis.

Limitations to be found during the study

Large population

The large number of companies in the United Kingdom is among the major limitations expected to be faced by the researcher. This large number of companies translates to a very large study population and so hard for the researcher to complete the study within the required time and at high quality. This is where sampling techniques will be employed. A sample of 50 companies will be randomly selected and used as the major source of information. In collecting data, the researcher will base on these 50 companies. The results obtained from this sample will be generalized to the whole study population (Govaert, 2009). As a result, the researcher will be able to complete the study within the required time and quality and so success of the study process.

Negative attitude on the side of respondents

Negative attitude among the respondents is another limitation expected to be found during the study. This will limit the respondents from giving truthful and appropriate information concerning the research problem. For instance, some employees may provide false information concerning the reasons as to why companies go bankrupt. This is because employees mostly have negative attitude towards their employers and so towards the companies they work from. In dealing with this problem, the researcher will first inform the respondents on the aim of the study. Understanding the study aim will motivate the respondents to provide truthful information and so success of the study process (Fowler, 2002).

Source of information

Company websites

As stated in the previous sections, company websites though the internet will be among the major sources of data collection. Here, the researcher will first inform the company leaderships concerning the need to visit their websites. In this way, the researcher will be free to seek any kind of information from these websites. Most of the information used will be concerning financial performance where reports such as; balance sheets, income statements, cash flow among other relevant statements will be reviewed to understand the financial trends for the past few years (Caruana, 2011). At the end, the researcher will prepare a clear record of all obtained findings for further analysis.

Company officials

Another source of information will be the company officials. This is where interviews will be performed. The major aim of using the officials as another source of information is that some information will be hard to find from the company websites and so need people who can provide more of it. By using the company officials, they will be in a position to deliver all the relevant information necessary for success of the study. With these two major sources of information, the researcher will be in a position to complete the study within the desired quality and so success of the study process (Dane, 2008).

Data analysis

After the data collection and so results are obtained, the next step will be to analyses the obtained results so as to make them more meaningful and easy to understand by the reader. This is when data analysis will be performed. First, the researcher will group the raw data into various groups in accordance to their characteristics. Thereafter, computations will be performed on the grouped data to convert them into mathematical figures such as percentages or ratios. These results will therefore be used for analysis (Sarantakos, 2007).

Excel software will therefore be used in the data analysis section. The rational for choosing this software is that it is simple to use and that the reader can easily understand the information presented in excel than in any other type of statistical software. With this software, it will be easy for the researcher to perform the various computations from the obtained raw data. Thereafter, a regression analysis will be performed to determine the correlation between the variables and so draw conclusions from the results (Govaert, 2009). Following is a sample of this analysis.

Summary output

Regression Statistics

Multiple R

0.5803

R squared

0.3368

Adjusted R squared

0.2935

Standard error

2.4703

Observations

50

ANOVA

d. f

ss

ms

F

Significant f

Regression

3

142.55

47.53

7.787

0.00026

Residual

46

280.70

6.20

Total

49

423.24

Coefficient

Standard error

T stat

P value

Lower 95%

Upper 95%

Intercept

0.4371

3.9875

0.1096

0.9132

-7.5892

8.4636

Infant mort

1.2794

0.3007

4.2550

0.0001

0.6743

1.8846

White

0.0663

0.0336

1.0811

0.2853

-0.0314

1.1040

Crime

0.0014

0.0022

0.6340

0.5294

-0.0039

0.0059

From the above analysis, it can be noted that the obtained p value is less than 0.05, it can therefore be concluded that the p value is significant fit. By being significant fit, it means that there is a higher likelihood of correlation between the variables and so accepting the null hypotheis.