On the surface, accounting feels fairly simple: Add up the revenue, subtract the expenses and report where all the dollars are going. Today’s construction industry, however, is anything but simple, and it demands the ability to take a deeper dive into the immediate details while looking well into the future to develop strategies for long-term success. As construction leaders juggle concerns about trade wars, labor shortages and stubbornly high interest rates, the most skilled CPAs are helping their clients do much more than manage their books.
Whether you’re focused on the implications of potential tax incentives next year or trying to prepare to hand over the reins of your company ten years from now, perspectives from the financial experts in this piece—all of whom work for firms on CE’s latest edition of the Top 50 Construction Accounting Firms—can offer a roadmap to a healthy balance sheet.
TARIFF TALK
A 25% tariff on steel and aluminum turned into a 50% tariff. A 145% tariff on some Chinese goods dropped to 30%. A trade court blocked all of the new rules—and then, an appeals court reinstated them. As the on-again, off-again announcements of tariffs have created a sense of chaos for plenty of construction leaders, accounting firms have been working to help them navigate the uncertainty.
“We’re talking to our clients about using as much data as you have available and talking to as many supply-chain partners as you can,” says Brian Kassalen, CPA, CFF, principal with Baker Tilly and the firm’s construction industry leader.
Some of those conversations have focused on the ability to get ahead of lead times that are getting a bit longer. Kassalen points to electrical contractors who are seeing price increases on wiring and opting to purchase inventory in advance. While he says that stockpiling supplies can create financial challenges with paying for storage, the tradeoff can make sense.
“If they’re looking to mitigate their risk, they may opt for a bit of a haircut by using cashflow to store materials and avoid being penalized on a project down the road,” Kassalen says.
In some sections of the industry, however, there is no need to consider taking that haircut. Brad Werner, CPA, partner at Wipfli, says that some companies can deal with price instability due to overwhelming levels of demand from owners to get jobs done. “You still have such a supply issue in electrical demand for data centers, and there are not enough specialty contractors to deliver on all the work,” Werner says. “Clients in the electrical space are telling us they believe they’ll be able to pass on any increases of labor costs or materials costs to customers because they don’t have any other options.”
Looking ahead, there is one piece of potential good news for everyone in the industry: Kassalen believes that some suppliers—particularly for steel—may have already built in price increases after the initial unveiling of tariffs. “Maybe it’s going to be a bit more stable going forward,” he says.
TAKING ADVANTAGE OF A FRIENDLY TAX ENVIRONMENT
Many of the most valuable provisions from the Tax Cuts and Jobs Act of 2017 are scheduled to ride off into the sunset at the end of this year. Josh Billiard, CPA, CCIFP, partner at Plante Moran, says that many of his clients—particularly the small, closely held contractors—have been concerned about the return to a pre-2017 framework. Billiard points out that the arrangements for bonus depreciation and the deduction for flow-through entity income included in the TCJA “helped manage their tax liability while encouraging them to expand and invest.”
But those concerns will likely be laid to rest soon. Billiard expects contractors to see benefits from the recently approved One Big Beautiful Bill Act.
In addition to incentivizing contractors to invest in new equipment with favorable bonus depreciation rules, Carl Oliveri, CPA, CCIFP, CFE, partner, construction practice leader at Grassi, believes the legislation’s plans for research and development tax incentives will encourage more companies to spend money on opportunities to develop better building processes and materials.
“The research and development credit is more powerful than a deduction because it’s a dollar for dollar reduction of your taxable income,” Oliveri says. “Anybody who innovates their process can qualify for it. The nice thing is that you don’t always have to be successful.”
Oliveri has seen clients score big benefits from the credit, which allows companies to claim a credit of 8% of qualifying wages. For example, a contractor that specializes in exterior facade waterproofing set up a wind tunnel in a warehouse to test solutions that could prevent copper rusting. After failing a few times, they eventually uncovered a combination of coating that worked and managed to help fulfill the demands of a project with new copper panels and shingling on Staten Island.
In recent years, Oliveri says that contractors have shied away from taking advantage of the credit due to the requirement to capitalize the expenses and a concern about triggering an audit. However, the OBBB legislation aims to restore the ability to deduct the wages and get the tax credit—what Oliveri calls “two bites at the apple.” The other good news: It doesn’t increase the likelihood of an audit.
“The government wants you to use it,” Oliveri says. “As long as you aren’t doing anything egregious—a plumbing contractor testing out electrical systems, for example—it’s not a default audit trigger.”
PLANNING FOR THE NEXT GENERATION
While a friendly tax code can alleviate some of the challenges of today’s business environment, the challenges of designing and building aren’t going away—a fact that’s making more owners put “figure out what’s next” at the top of their to-do lists.
“We see a lot of contractors in the second or third generation [of ownership] wondering, ‘Do my kids want to deal with what I’m dealing with?’” Kassalen says. “A lot of times the answer is not really.”
With that in mind, Kassalen says that owners who are developing a framework for an exit strategy is becoming “an increased area of focus.” He has seen a lot of contractors form employee stock ownership plans “as a way of taking some money off the table and putting in their pocket while also giving some ownership to their employees.”
Oliveri has also noticed a surge in ESOP interest over the past year. When Grassi conducted its biennial survey of contractors, architects and engineers in 2024, ESOPs weren’t really on the radar: Just 29% of respondents had adopted or bothered to consider the structure. Now, he typically talks to a contractor about the process for setting one up at least once a week.
Part of the push to embrace an ESOP is its aim to solve the industry’s labor challenges. “It’s a great strategy to attract talent,” Oliveri says. “They have an opportunity to be an owner-operator in a really innovative industry while the outgoing owner gets to maintain their legacy.”
The biggest upside comes down to what a company pays the government. “You really transform your company from a for-profit entity to a qualified retirement plan,” he says. “When you get to that point, you pay no federal or state income taxes.”
Getting there isn’t a speedy process, though. Oliveri says the entire process can take up to a year. The first step involves a feasibility study to determine if the company’s balance sheet is strong enough to deal with debt. “There’s a lot of administrative red tape,” he says. “You need to get financing and get somebody to pay out the outgoing owners. You have to figure out whether it will be seller debt, bank debt or a blend of both.”
For owners interested in the move, they’ll also need to figure out an important plan for what happens after the ESOP structure is officially in place. “Nobody tells you what to do on day two,” Oliveri says. “For owners who always ran the company their way, it’s a new ballgame. They have stakeholders and a board of directors. Everything has to be run as if you’re a publicly traded company.”
THAT TWO-LETTER WORD
No matter what the next generation of leadership looks like, there is one common thread that unites every current member of the industry: a need to make sense of the real implications of AI. Research from automated accounts payable firm Yooz shows that the construction industry has shown the highest resistance to AI advancements, far outpacing other industries such as manufacturing, logistics and finance in an overall fear of AI.
Werner says the findings of Wipfli’s most recent technology survey—which included more than 300 respondents in the construction industry—reveal a disconnect between how companies feel about their AI adoption and the actual results. “They’re grading themselves fairly generously,” he says. “The truth is most middle-market and lower-middle-market construction companies don’t have the sophisticated IT leadership needed to wrap their arms around how to use AI to address some of their productivity challenges.”
While AI may sound daunting, the construction industry should feel more comfortable leaning in for one reason: For years, contracting firms have shown an ability to harness the power of unproven technologies. Billiard referenced several contractors—from building materials suppliers to specialty trade contractors—who have been investing in technologies and efficiency programs for decades. Some have constructed building walls in temperature-controlled manufacturing facilities to remove some of the human interaction and the variable factors on a jobsite. Others have pioneered new technologies to safely and quickly demolish existing concrete structures using remote-controlled sawing equipment.
“The contractors who have been around for a long time are really good at finding a way forward,” Billiard says. “They may not be the first on the technology train, but they know how to address and resolve problems.”
That technology train will continue to pick up speed. Those problems will continue to evolve. Tax incentives will come and go. Despite all the changes on the horizon, though, the foundation of every construction company remains the same. “The underlying theme always needs to be that projects are producing positive cashflow,” Oliveri says. “Make sure everyone in the organization understands that this is a cash culture. That’s what keeps contractors going forward.”
SEE ALSO: HOW CONTRACTORS CAN NAVIGATE GROWTH AMID HIGHER COSTS AND A TIGHTER LABOR MARKET
