A Contractor’s Midyear Report Card

It’s always a good time to sit down, review your business practices and seek out opportunities for improvement. But midyear offers an extra advantage, as the most recent end-of-year review is still relatively fresh in mind, making this an ideal time to assess the accuracy of your forecasts, gauge the efficacy of efforts underway, and take stock of the initiatives that will define the final months of 2026.

Financial Performance

The financial statement paints a picture, but taking a closer look at financials can reveal important details. Start by comparing your revenue to forecasts, gross margin trends, job performance, job costing, work-in-progress (WIP) and cash flow versus profitability.

A business might have cash in the bank but liabilities from overbillings on certain contracts. What does that mean? The composition of the component of working capital may reveal certain issues. Understanding these types of issues and looking at the composition of financials can be a segue to your insights.

Cash and accounts receivable are the be-all and end-all for most businesses in the industry — but not everything. A better understanding can only be reached by digging in to understand if accounts receivable and/or cash contain overbilled liabilities. Ask yourself: “Are we borrowing on our line of credit while also overbilled?” That could foreshadow liquidity issues.

Furthermore, consider equity inclusive of any loans receivable from shareholders or others who have extended repayment terms or no stated repayment terms. It’s relatively common for business owners to take loans out of the company, but put that in context by asking harder questions like, “Can we count on getting this back?” Modern businesses are chock-full of useful data, so you likely have the numbers on hand. But only connecting the dots can put values in context to reveal your financial standing.

Backlogs & Pipeline

Now turn to the work itself. Do you have enough to keep busy and, perhaps more importantly, is it the right kind of work? Look at your backlog to assess quality versus quantity. The idea is to align your capacity with margin goals, gain visibility into your pipeline for the next six months, and assess the concentration of customer and project risk.

Your profitability expectations depend largely on the margins associated with your work. For example, for some contractors, data center build-outs and multifamily home construction aren’t going to result in similar profit margins. For businesses tackling new lines of work, expectations might be even more of a mystery. Draw the most accurate conclusions based on the data available.

Labor & Operations

Your business depends on its capacity to complete work and its level of productivity in doing so. Look closely to identify and correct issues relating to the availability of labor, performance of subcontractors (if any), and operational bottlenecks and process gaps.

This may be a good time to assess your need to outsource or adopt other solutions to complete more work or expedite projects. For some, that might mean adopting AI technology to take the burden off the back office and management or exploring a joint venture to augment your labor pool.

Assessing the availability of labor is more complicated today as senior professionals and expert craftsmen 
enter retirement. Taking a sober look at staffing needs means being careful not to be led by assumptions informed by the past. Look at planned retirements and who may be eligible for pensions, and think critically about avoiding a potential labor crunch while you still have resources available. Ideally, between training programs, AI tools and robotic assistance, your business can achieve parallel coverage across departments.

Midyear Tax Planning & Strategic Adjustments

Midyear tax planning can create better outcomes. The extra time allows for a more thorough analysis of what strategies are working, what compliance needs remain and the elections and opportunities available. Contractors often assume one tax year will be the same as the last, but the tax changes introduced by the One Big Beautiful Bill Act (OBBBA) make this a year that requires a fresh look at your tax strategy.

For example, under OBBBA, new definitions apply to what the IRS deems a residential construction project. This is important to recognize and plan for, as it may unlock new accounting methodologies with potential benefits. There are also additional available research and experimentation (R&E), also known as research and development (R&D), and credits and expanded bonus depreciation, among other changes.

Tax planning is an essential part of preserving cash flow. And in construction, cash is still king.

Explore AI

Across industries, AI is making a significant impact on business as usual. How AI fits in is unique to every business, but in construction it’s already contributing to safer jobsites, facilitating smarter contracts and building faster, more capable, back-office operations. Midyear might be the ideal time to start looking at how AI can enhance your operations and create a strategic plan to expand or implement AI capabilities with proven, measurable benefits.

Risk, Bonding & Compliance Considerations

As many markets tighten, bonding is still relatively available to contractors. Make the most of what’s available by preparing financial statements that help maximize your capacity.

Start by speaking with agents and lenders to understand their expectations, then arrange insurance, anticipate compliance issues and keep risk considerations front and center.

Financing is tightest for those with risk. Limit the cost of your capital by reducing risk wherever possible.

Finally, assess bank covenants and understand what kind of opportunities you can take and where proposed deals might compromise existing covenants. This is particularly crucial for those navigating a tough year. For example, we recently had a client that looked at a life insurance contract, and while it may have looked like a lucrative windfall on its face, the investment vehicle it involved depended on funds barred from inclusion in their bank’s working capital calculation. The last thing you want to do is give your bank or bonding partner a reason to walk away. 
 

Turning the Midyear Report Card Into an Action Plan

After applying scrutiny to your business practices, identify the two or three areas with the most room for improvement. Then make realistic adjustments that stand to have a measurable impact in the second half of the year.

Can you improve how you are charting overhead? What does your working capital currently look like? Which tax elections should you pursue? How often are you meeting with your bank and bonding company?

It’s one thing to identify areas ripe for improvement, and another to follow through by making meaningful changes.

Positioning for a Strong Year-End

Once your assessment is done and you have an action plan in place, you should have a clear understanding of jobs in progress, the trajectory of those jobs, the standing of your project pipeline and backlogs, emerging industry trends and what you can do to be a stronger contractor by the end of 2026.

Those taking the initiative have their future in their hands. From here, you can go in myriad directions to explore new structures and opportunities, branch out into lucrative markets, initiate joint ventures or pursue exit strategies.

Deal activity is currently strong in construction, with private equity investing in the industry, while roll-ups and consolidations are seemingly more common than ever. Companies that consistently evaluate performance and seek improvement are in the best position to benefit from the active deal environment.

Whether you’re considering an exit or not, the midyear review presents an opportunity to assess operations, make meaningful changes and be among those best prepared to finish 2026 strong.