Senior Manager Jeremy McAdams, CPA, leads the Utah practice of Aldrich’s award-winning construction accounting firm. Increasingly, contractors and subcontractors are turning to construction industry accountants and advisors to help them manage growth and plan for success. In this Q+A, he discusses current trends in the Salt Lake construction industry, strategies for managing growth and planning for market shifts, and when owners should start thinking about succession planning.
Q1: What are some of the trends in Salt Lake-area construction right now?
Jeremy McAdams (JM): Many new projects in Utah are centered on long-term development, like multifamily residential construction that will make the area more sustainable for entry-level homes. Some developments are forward-looking, especially with the winter Olympics returning to Salt Lake, while others, like redoing the airport, are legacy projects. With a new NHL team and high hopes for an MLB team, opportunities are emerging for a stadium as well as for a significant amount of infrastructure.
The area holds significant project potential construction companies, but labor shortages remain a major challenge, with insufficient construction workers available to meet demand, driving up labor costs.
Q2: With so many new projects, many construction companies have the opportunity to expand. What steps can business owners take to manage growth?
JM: Growth is important, but it has to be planned and managed to avoid a strain on cash flow. Sometimes owners see the opportunity for growth, but don’t factor in how the cash often lags behind. The initial cash outlays needed to grow may not be recouped quickly enough to fund payroll and equipment. To avoid that cash crunch, it’s essential to plan for growth carefully. Construction company leaders should align project timelines with cash flow projections, ensuring they have sufficient funds in reserve to support new ventures before they begin.
Q3: What are some of the funding issues currently affecting contractors?
JM: There are many projects that are funded by federal and state funds as well as other significant privately funded projects. Many generational projects are in progress or planned for the near future including the airport, downtown redevelopment, temple renovation, stadium construction, etc. These projects are well funded and will continue. Many other projects have been discussed and planned for but are yet to start. These may be impacted by the sunsetting of the TCJA and expected extensions or modifications to tax laws that were presented during the election. Additionally, owners are waiting for interest rates to come into line for the projects to be funded.
It is important for contractors to plan and prepare for their projects and ensure that they have adequate funding sources for their companies to cash flow the work. Construction companies need to be working with a team of professionals who understand the industry. One member of the team should include a banking relationship who knows the industry. This can help in obtaining cash flow needs, recommendations of banking products which could help companies as they are working through the projects and the ups and downs of the construction industry.
Q4: How would you advise clients to plan for uncertainty or shifts in business cycles?
JM: The key is careful and consistent financial management, particularly cash flow. Closely monitor your financials, identify inefficiencies, and cut unnecessary expenses to remain lean and resilient, especially when new projects slow down.
Also, it’s important for owners to scenario plan for a wide array of potential market shifts. By closely monitoring industry trends and staying aware of economic indicators, you can anticipate both upturns and downturns and adjust your strategies accordingly.
Q5: Many construction company owners are thinking about or actively planning a transition of their business to a new owner. How do you advise clients to prepare?
JM: Transitions – especially ones that meet the goals of an owner – can take a significant amount of time. new owner might be a family member, a private equity investor, or external buyer, and each requires a different approach. The more time you have to prepare for a transition, the better; it takes time and energy to craft a succession plan that maximizes business valuation and that will allow the company to thrive.
When preparing to sell your company, consider the transaction from the buyer’s perspective—especially the factors that could influence their decision to purchase financial health, ability to generate future value, customer relationships, fixed assets, and your management team.
Also, plan your exit strategy—ideally, long before you’re ready to leave. You’ll want to consider your personal finances, the future of the company, the type of exit strategy to pursue, and develop your plan. Succession planning is a complex process, and a trusted team of advisors familiar with the construction industry can guide you to the most positive outcomes.
Q6: What tax optimization strategies do you find most beneficial for your clients? How can your clients make best use of the variety of services Aldrich offers?
JM: Taxes are one of the biggest expenses for contractors, so planning is essential. Contractors have several options for how they pay taxes and the various tax credits and incentives available. It’s important to thoroughly review your tax situation annually to ensure you’re taking advantage of all available benefits. Work with an accountant who understands construction and can help you plan a tax strategy that aligns with your business goals.
Most CPA firms will service the construction industry, but not all of them have specialized people within construction. Clients often tell me that one of Aldrich’s key differentiators is that we have a team that lives and breathes construction on a day-to-day basis and understands profit percentages, pitfalls, challenges, reporting issues, and working with bankers and bonding companies.
Aldrich excels at bringing all essential services under one roof, allowing us to integrate and balance competing priorities seamlessly. We help contractors minimize tax burdens while ensuring they still qualify for bonding, and we connect our wealth management services to support owners with long-term succession planning. From short-term strategies and tax planning to financial statements and long-term growth, our team of experts works collaboratively to deliver a comprehensive, well-balanced approach for our clients.
Q7: Construction Executive recently named Aldrich a Top 50 Construction Accounting Firm for 2024. As a member of the construction accounting team, what does this award mean to you?
JM: It’s a privilege to work with a team that prioritizes the financial and business well-being of our clients and we are very proud of that award. We strive to go beyond the status quo and evolve the practice to help our clients stay ahead of new challenges and achieve their goals. On both a professional and personal level, I find Aldrich an incredibly rewarding place to work.
To learn more about how Aldrich’s construction specialists can support your business, click here.
