Money is a topic many prefer to sidestep, but in the construction and housing industries, it’s the driving force of every decision—from navigating today’s economic pressures to building long-term stability. As businesses confront rising costs, shifting consumer confidence, and an evolving tax landscape, smart financial planning has never been more essential. To cut through the noise this tax season, we spoke with Darrel Mullenbach, Certified Public Accountant (CPA) and Certified Construction Industry Financial Professional (CCIFP) at CliftonLarsonAllen, LLP (CLA). Here, he offers candid insights on tax strategies, industry trends, and the financial habits that can help builders and remodelers stay resilient, competitive, and prepared for whatever comes next.
Q: What are the biggest financial or tax challenges you’re seeing construction and housing businesses face right now?
Some of the key challenges affecting construction currently include interest rates and the overall financial health of consumers. As the overall health of the consumer decreases, it becomes a drag on construction and housing businesses. Slow economic times also can be difficult on construction businesses. During these uncertain periods, construction companies need to focus on efficiency, cost reductions, and cash flow management. The new income tax bill (OBBBA) has maintained the income tax burden on small business consistent with prior years. Companies with well-managed leverage, cash flow, and meaningful financial forecasting will have an advantage being able to weather fluctuations in the broader market and building environment.
Q: When is it time for a growing business to move from a bookkeeper to a CPA—and what’s the difference in value?
As companies evolve, having a reliable accounting team is crucial to navigate the increasingly complex business environment. Whether fractional or full-time, a competent accounting team is essential for day-to-day transaction processing and compliance. However, during periods of growth or uncertainty, the need for an industry-specialized CPA becomes paramount. A qualified CPA brings in-depth knowledge of financial and tax strategies that can optimize cash flow, save on taxes, and enhance overall planning—all of which are essential for sustainable growth and financial success.
Q: How can business owners better prepare for tax season throughout the year?
Effective year-end tax planning can help you take advantage of strategies to defer or avoid unnecessary tax payments. Your tax filing should simply reflect the success of your planning efforts. Regular quarterly meetings with your CPA facilitate proactive planning, which can help eliminate unexpected tax bills, optimize tax bracket usage, and identify tax methods and credit opportunities. Maintaining up-to-date books and an accurate work-in-process schedule is crucial for meaningful and efficient planning.
Q: What should builders and remodelers keep in mind as they plan their budgets for the next year? What role does financial forecasting play in long-term business stability?
When preparing budgets, it’s crucial to use realistic expectations and margins. Be sure to account for known costs and plan accordingly for increases in areas such as insurance, pay rates, material costs, and fees. A common issue we observe is a disconnect between the office and the field during budget creation. To avoid this, ensure all parties are involved in the buildup of the budget. Incorporate contingencies as needed, whether the budget is for internal accountability or external stakeholders like banks. It’s essential that the budget is achievable. While setting ambitious goals can drive your team, the budget should serve as the plan, not the goal. As Yogi Berra famously said, ‘You’ve got to be very careful if you don’t know where you’re going, because you might not get there.’ Don’t leave it to chance to determine when you have reached your goals. Prepare both an annual budget and a longer-term five-year projection to establish a clear vision of your objectives and to recognize when they are achieved.
Q: What advice do you give clients about maintaining profitability while still investing in growth?
Focus on the bottom line rather than the top line. Revenue growth that doesn’t contribute to the bottom line only consumes valuable resources—and generates risk—without yielding results. So, prioritize investing in your core services. Over time, we see construction companies expand their service offerings, but revisiting can be often overlooked. When the economy slows, it may be prudent to refocus on the core services that have historically driven the company’s success. While adding new services can boost profitability and growth, it’s essential to thoroughly assess market demand, costs, and customer interest to mitigate risks. Just like in stock investing, thorough research is crucial. Lean on your broader team, including your CPA, to help make informed decisions.
Q: Do you have any other financial advice or recommendations for businesses in this industry?
The key to success, beyond hard work, is understanding your numbers: costs, margins, and cash flow. Accurate financials and projections are best achieved with the help of an internal controller or an external, industry-specialized CPA. A good team will enable you to make informed decisions rather than relying on luck. The best builders and contractors we see are not only excellent at their craft but also understand their financials and run off good data overseen by a good team.
For more information on this topic, contact Darrel Mullenbach at darrel.mullenbach@claconnect.com or 612-376-4652.
