What to Watch for in Construction Finance in 2026

The construction industry enters 2026 at a crossroads. After navigating elevated costs, persistent labor shortages, and policy uncertainty throughout 2025, contractors in the $500K–$10M range face both significant headwinds and real opportunities.

Here's what's actually happening—and what smart contractors are doing about it.

The Economic Reality: Building Through Uncertainty

Construction spending is projected to grow modestly in 2026 (roughly 1.8–2%), pivoting from a slight decline in 2025. But that headline number masks sector-specific dynamics you need to understand.

What's driving growth:

• AI-driven data center construction continues to surge

• Healthcare and institutional facilities remain strong

• Infrastructure Act funding (though expiring in October 2026)

• Advanced manufacturing and defense projects

What's creating pressure:

• Elevated interest rates squeezing financing

• Tariff-related material cost uncertainty

• A tightening labor market with structural shortages

For contractors in the residential and commercial space, this means one thing: your financial systems need to work harder than ever.

The Labor Gap Is Getting Worse—Plan Accordingly

The numbers are stark. The industry will need approximately 499,000 new workers in 2026, up from 439,000 in 2025. But here's the problem: 41% of current construction workers are expected to retire by 2031, while only 10% of workers are under 25.

What this means for your finances:

1. Wage pressure is real. Construction wages increased 4.2% year-over-year as of late 2025. Your job costing needs to reflect current labor rates, not what you paid six months ago.

2. Overtime becomes expensive. When you can't find enough workers, your existing crews work longer hours at premium rates. If you're not tracking labor hours by job phase, you're flying blind.

3. Subcontractor costs are climbing. Specialty trades—especially electricians—face acute shortages. Build contingency into your bids.

The fix: Real-time labor tracking tied directly to your job cost reports. Know your actual labor burden on every project, every week.

Learn more about job costing best practices for construction companies.

Cash Flow Management Is Non-Negotiable

Here's a statistic that should concern every contractor: up to 82% of construction business failures are attributed to poor cash flow management.

In 2026, cash flow pressure intensifies due to:

• Extended payment terms (Net 30–60 remains standard)

• Material costs requiring upfront payment

• Retainage tied up for months

• Delayed change order approvals

The contractors who thrive will be those running 13-week rolling cash flow forecasts.

This isn't complicated spreadsheet work. It's linking your project timelines to your payment schedules and expense cycles so you can see cash crunches 8–12 weeks before they happen.

When you know a shortfall is coming, you have options: adjust draw schedules, accelerate billing, delay non-critical purchases, or arrange a line of credit. When a cash crunch surprises you, your options disappear.

AI and Automation Are Reshaping Construction Accounting

2026 marks a turning point for AI in construction finance. This isn't hype—it's happening now.

What AI is already doing:

• Automated invoice scanning that reads vendor details, amounts, and cost codes

• Intelligent bill matching to jobs and purchase orders

• Anomaly detection flagging unusual transactions before they become problems

• Automated approval routing based on project and dollar thresholds

Why this matters for your business:

Manual AP processes are a hidden profit killer. Delays in accounts payable extend monthly closes by weeks, impacting cash flow visibility and decision-making. Manual data entry increases error rates and duplicates.

The firms gaining competitive advantage in 2026 aren't necessarily the biggest—they're the ones eliminating manual bottlenecks between field operations and back-office accounting.

This is exactly why integrating your project management software with QuickBooks matters. When data flows automatically from Buildertrend, Procore, or CoConstruct into your accounting system, you eliminate the "Silo Effect" that causes 63% of communication issues and error rates.

WIP Reports and Bonding Capacity: Your Trust Asset

If you're pursuing larger projects or looking to expand your bonding capacity, your Work-in-Progress (WIP) reports need to be bulletproof.

Banks and bonding agents are demanding more robust underwriting in 2026. They want to see:

• Accurate percentage-of-completion calculations

• Clear over/under billing positions

• Historical project performance data

• Real-time cost-to-complete projections

Moving from "cash basis guessing" to proper WIP reporting transforms your financials from a compliance burden into a trust asset that unlocks growth.

Material Costs and Tariff Uncertainty

Material prices remained mostly stable through 2025 as contractors worked through existing inventories. That buffer is depleting.

Trade policy uncertainty—particularly tariffs on steel, copper, plastics, and other key imports—could push input costs higher through 2026. While federal tax incentives may stimulate domestic production, the timeline for relief is unclear.

Practical responses:

• Lock in material pricing where possible on committed projects

• Build tariff contingencies into new bids (5–10% depending on material mix)

• Track actual material costs against estimates weekly, not monthly

The contractors who bid today based on prices from six months ago will feel the squeeze.

The Fractional Controller Model Gains Ground

Here's the positioning reality for contractors in the $500K–$10M range: You've outgrown basic bookkeeping. A generalist who processes transactions and reconciles bank statements doesn't understand retainage, progress billing, or change order management.

But you're not ready for a $150K CFO focused on capital structure and M&A strategy.

The middle ground is the Fractional Controller—someone who fixes the data integrity issues, builds proper job costing architecture, and delivers the financial visibility you need to make decisions.

A Fractional Controller provides:

• Financial system architecture optimized for construction

• Monthly financial close with project-level P&L

• Weekly job profitability analysis

• 13-week cash flow forecasting

• WIP schedules for bonding and lending

• ASC 606 compliance for percentage-of-completion revenue recognition

This isn't overhead—it's an investment that pays for itself by catching revenue leakage, optimizing bidding, and protecting cash.

Learn how Fractional Controller services work for construction companies.

Action Items for Q1 2026

1. Audit your job costing accuracy. Pull your last 5 completed projects. Compare your original estimates to actual costs by category. If variances exceed 10%, your system needs work.

2. Implement a 13-week cash flow forecast. Start simple. Map known inflows (scheduled draws, receivables) against known outflows (payroll, subcontractors, fixed costs). Update weekly.

3. Evaluate your tech stack integration. Is data flowing automatically from your PM software to QuickBooks? Or are you relying on manual entry that creates delays and errors?

4. Update your labor burden calculations. Between wage increases, overtime, and benefit costs, your actual labor rate has likely changed. Use current numbers in your estimates.

5. Review your change order process. The biggest profit killer is the unbilled change order. Every extra hour and every extra 2x4 needs to make it to an invoice.

The Bottom Line

2026 isn't about waiting for conditions to improve. It's about building the financial systems that give you clarity and control regardless of what the market does.

The contractors who know their true job costs, forecast their cash position, and eliminate manual bottlenecks will outperform those flying blind.

Financial clarity isn't a luxury—it's the foundation of sustainable growth.

About Salisbury Bookkeeping

We serve contractors in the $500K–$10M range who've outgrown basic bookkeeping but aren't ready for CFO-level costs. As NAHB members, we build financial systems on industry standards and integrate QuickBooks with the tools you actually use: Buildertrend, CoConstruct, Procore, and Knowify.

Schedule a consultation to see how we can help you build financial clarity.

Salisbury Bookkeeping — Financial Systems Architects for the Construction Industry