Three Key Strategies for Construction Companies to Consider Heading into 2025
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As we approach 2025, construction companies face unique opportunities and challenges in navigating today’s dynamic economy. Here are three strategies that we think are important for construction companies to consider in the next year.
1. The Rise of ESOPs: A New Era for Ownership Transitions
Employee stock ownership plans (ESOPs) have long been a favored model for construction companies, with around 15% of all U.S. ESOPs coming from this sector
. ESOPs not only support long-term employment and tax-advantaged retirement savings, but they also cultivate a culture of ownership that strengthens a company’s legacy. Today, there’s a notable acceleration in new ESOP formations within the construction sector, increasing to roughly 27% of new formations annually.
So, why this momentum now? The answer lies in a well-documented demographic shift: the “silver tsunami.” A growing number of aging owners are seeking to transition ownership, and ESOPs offer an appealing solution—preserving the owner’s legacy while offering significant tax benefits and flexible, creative structuring options. Furthermore, the successful track record of growth among employee-owned construction companies has dispelled old myths and inspired more firms to explore this path. ESOPs offer an attractive route that preserves stewardship, maintains company culture, and positions construction businesses for sustainable growth in a competitive industry. Learn more about ESOPs.
2. Falling Interest Rates: Time to Reassess Liquidity Strategies
With interest rates on a downward trajectory, construction companies can seize the opportunity to rethink how they manage their cash. The high-interest environment is showing signs of softening, with potential Federal Reserve rate cuts ahead due to fragile unemployment trends and geopolitical instability driving a flight to safe assets. This changing financial landscape requires agile decision-making to make the most of your liquidity.
Here’s how to optimize your liquidity strategy in light of these shifts:
-
Cash segmentation. Differentiate between operating cash (working capital), reserve cash (surplus liquidity between three months and a year), and strategic cash (one year and beyond).
-
Cash forecasting. Use detailed cash forecasts to identify available liquidity pools and decide on the appropriate deployment across different tenors.
-
Investment laddering. Explore investment laddering strategies to lock in higher yields and extend the duration of the cash portfolio, ensuring reserve cash works harder for the business.
A disciplined liquidity strategy can mean the difference between capturing and missing opportunities as the economic environment evolves.
3. Impending Tax Changes: A Window for Legacy Planning
Significant tax changes are on the horizon, which may dramatically impact the largest estates. The current tax landscape provides a major opportunity for high-net-worth owners to leverage their lifetime gift and estate tax exemption of approximately $13.61 million per individual, ensuring those assets move outside of their taxable estate.1 With just about a year left to capitalize on this exemption before it reduces roughly in half, time is of the essence.
Consider the financial impact: a $50 million estate in 2024-2025 would face an estate tax of roughly $9.1 million after using a couple’s exemption. But after 2026, the tax bill on the same estate would surge to approximately $14.5 million—a 59% increase.2 By acting now, construction owners can both remove significant assets from their taxable estate and ensure that future appreciation of those assets is sheltered from estate taxes. There are a variety of estate planning strategies—such as creating trusts or employing valuation discounts—that can help reduce the taxable value of transferred assets or even remove them entirely from the estate while allowing for some retained benefits. Taking advantage of these strategies before the law changes could save millions and solidify a legacy.
Preparing for a Transformative Year Ahead
As 2025 approaches, it’s important for construction companies to stay proactive and strategic, taking advantage of opportunities in ownership transition, liquidity management, and estate tax planning. The unique dynamics of the construction industry—including its reliance on capital, the importance of preserving a legacy, and the need for steady cash flow—mean that each of these elements can have an outsized impact on the success of a firm. By taking decisive action now, construction companies can better position themselves for resilience, growth and long-term sustainability in an evolving landscape.
1 Protecting Your Assets: Tax Planning Tips In Case Of The 2025 Gift Tax Sunset, Forbes, October 2024
2 Understandng the 2026 Changes to the Estate, Gift, and Generation-Skipping Tax Exemptions, Husch Blackwell, June 2024
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Caroline Donlin
Managing Director and Head, Engineering & Construction
Caroline Donlin is a Managing Director and Head of BMO’s Engineering and Construction (E&C) practice nationally. BMO has the largest, dedicated E&C pr…(..)
View Full Profile >As we approach 2025, construction companies face unique opportunities and challenges in navigating today’s dynamic economy. Here are three strategies that we think are important for construction companies to consider in the next year.
1. The Rise of ESOPs: A New Era for Ownership Transitions
Employee stock ownership plans (ESOPs) have long been a favored model for construction companies, with around 15% of all U.S. ESOPs coming from this sector. ESOPs not only support long-term employment and tax-advantaged retirement savings, but they also cultivate a culture of ownership that strengthens a company’s legacy. Today, there’s a notable acceleration in new ESOP formations within the construction sector, increasing to roughly 27% of new formations annually.
So, why this momentum now? The answer lies in a well-documented demographic shift: the “silver tsunami.” A growing number of aging owners are seeking to transition ownership, and ESOPs offer an appealing solution—preserving the owner’s legacy while offering significant tax benefits and flexible, creative structuring options. Furthermore, the successful track record of growth among employee-owned construction companies has dispelled old myths and inspired more firms to explore this path. ESOPs offer an attractive route that preserves stewardship, maintains company culture, and positions construction businesses for sustainable growth in a competitive industry. Learn more about ESOPs.
2. Falling Interest Rates: Time to Reassess Liquidity Strategies
With interest rates on a downward trajectory, construction companies can seize the opportunity to rethink how they manage their cash. The high-interest environment is showing signs of softening, with potential Federal Reserve rate cuts ahead due to fragile unemployment trends and geopolitical instability driving a flight to safe assets. This changing financial landscape requires agile decision-making to make the most of your liquidity.
Here’s how to optimize your liquidity strategy in light of these shifts:
-
Cash segmentation. Differentiate between operating cash (working capital), reserve cash (surplus liquidity between three months and a year), and strategic cash (one year and beyond).
-
Cash forecasting. Use detailed cash forecasts to identify available liquidity pools and decide on the appropriate deployment across different tenors.
-
Investment laddering. Explore investment laddering strategies to lock in higher yields and extend the duration of the cash portfolio, ensuring reserve cash works harder for the business.
A disciplined liquidity strategy can mean the difference between capturing and missing opportunities as the economic environment evolves.
3. Impending Tax Changes: A Window for Legacy Planning
Significant tax changes are on the horizon, which may dramatically impact the largest estates. The current tax landscape provides a major opportunity for high-net-worth owners to leverage their lifetime gift and estate tax exemption of approximately $13.61 million per individual, ensuring those assets move outside of their taxable estate.1 With just about a year left to capitalize on this exemption before it reduces roughly in half, time is of the essence.
Consider the financial impact: a $50 million estate in 2024-2025 would face an estate tax of roughly $9.1 million after using a couple’s exemption. But after 2026, the tax bill on the same estate would surge to approximately $14.5 million—a 59% increase.2 By acting now, construction owners can both remove significant assets from their taxable estate and ensure that future appreciation of those assets is sheltered from estate taxes. There are a variety of estate planning strategies—such as creating trusts or employing valuation discounts—that can help reduce the taxable value of transferred assets or even remove them entirely from the estate while allowing for some retained benefits. Taking advantage of these strategies before the law changes could save millions and solidify a legacy.
Preparing for a Transformative Year Ahead
As 2025 approaches, it’s important for construction companies to stay proactive and strategic, taking advantage of opportunities in ownership transition, liquidity management, and estate tax planning. The unique dynamics of the construction industry—including its reliance on capital, the importance of preserving a legacy, and the need for steady cash flow—mean that each of these elements can have an outsized impact on the success of a firm. By taking decisive action now, construction companies can better position themselves for resilience, growth and long-term sustainability in an evolving landscape.
1 Protecting Your Assets: Tax Planning Tips In Case Of The 2025 Gift Tax Sunset, Forbes, October 2024
2 Understandng the 2026 Changes to the Estate, Gift, and Generation-Skipping Tax Exemptions, Husch Blackwell, June 2024
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