Inflation, higher interest rates, and rising materials costs are putting the squeeze on commercial contractors. Add in a tough labor market, and it's no surprise many are treading carefully when it comes to expansion. But growth isn’t off the table. It just requires a sharper strategy.
Here’s what contractors need to know to keep moving forward in today’s economy.
Labor Is Tight And Could Get Tighter
Even with the Federal Reserve tightening the screws, labor markets remain hard to crack. For small businesses, finding skilled help comes at a premium.
One risk flying under the radar is the impact of immigration enforcement. Roughly 14% of the U.S. construction workforce is undocumented. A major crackdown or mass deportation effort could shrink the labor pool overnight, driving labor costs even higher and making new jobs harder to staff.
For many contractors, the smart move now is to invest in tools and systems that reduce dependence on labor. Upgrading equipment, tightening jobsite processes, and using software to manage scheduling or inventory can help teams do more with fewer hands. Equipment purchases may also be worth accelerating before tariffs push prices up further.
For the workers you can’t afford to lose, retention matters more than ever. Offering flexible hours, ongoing education, or career development opportunities can go a long way in keeping key people on board.
Tariffs Are Raising Material Costs
New tariffs on imports from Canada, Mexico, and China are already making waves, especially in lumber, appliances, iron, and steel. While they could push more manufacturing back to the U.S. long term, the short-term effect is likely to be higher prices and slower economic growth.
Contractors relying on imported materials should act fast. Look into domestic alternatives now, before prices rise further. If local sourcing isn’t viable, stay alert to tariff changes country by country. Shifting suppliers quickly may soften the blow if one region gets hit harder than another.
Growth Needs to Be Smart, Not Fast
Expanding services or opening new locations in this climate comes with risk. Contractors should double-check demand, pricing power, and cash reserves before pulling the trigger.
Before making moves, make sure projected sales will more than cover costs. And always have enough capital to cover several months of expenses if revenue takes time to catch up.
Contractors using financing for equipment or inventory should also maintain more than one lending relationship. With many banks pulling back from small business loans, having options is critical. Explore vendor-backed financing and talk with your local bank to understand their criteria.
If those routes don’t pan out, non-bank lenders may be an option. They can move quickly, though their rates tend to be higher. Businesses with strong credit and a proven track record of financing essential equipment still have access to quality options, just expect to pay more than in years past. Always weigh financing costs against the profits that new equipment or services are expected to generate.
Efficiency Is the New Advantage
Cutting costs without cutting corners means getting leaner, faster, and smarter. Automation is one way forward. Many contractors are turning to tech like inventory tracking software, robotic tools for repetitive tasks, and AI tools to speed up basic admin and communication.
These upgrades can help reduce the number of people needed to run the business while keeping service quality high and overhead lower.
Additional moves to tighten up include:
- Reviewing inventory frequently to avoid overstocking
- Staying laser-focused on cash flow and securing flexible payment terms
- Turning fixed costs into variable ones where possible to stay agile
Bottom Line
In a market like this, strategic growth beats fast growth. Keep an eye on your inputs, protect your workforce, and position your company to run lean and scale smart. That’s the playbook for navigating what’s next.
