Bonding is very important for our business in construction. Many of our contractors have to have a strong bonding program in order to get work. Beyond that, during times of financial instability, project owners rely on bonding for security – probably more than they have in the past.
Needless to say, it’s critical to build a relationship with our surety and our bond manager at the insurance agency. Here are three things that can put you on the fast track to securing the bonding program you want.
Shortcut #1: Proper financial reporting
Sureties need good, reliable, accurate financial reporting. They can’t use poor, incorrect, or erroneous data. So, what does proper financial reporting entail?
- Accurate monthly or quarterly financial statements using the percent complete method (with a WIP) helps the surety understand your company.
- The balance sheet is VERY important. It allows the bond manager to see what kind of strength you have in the organization and what kind of storms you can weather. Make sure your balance sheet is accurate!
- Not all accountants are created equal. Enlist the help of a construction industry accountant who understands the nuances of our industry.
- If you require a financial statement review (which is very common in the U.S.), use a construction accounting specialist. They will understand the percent complete method and what the WIP needs to look like.
Shortcut #2: FInancial analysis knowledge
The surety folks need you to have financial strength. But do you know what your financial statements are actually telling people? Once you understand yourself what your numbers mean, the conversation with them is much easier – which means it’s easier to get the bonding program you want. Here are three key things the surety is usually looking for:
- Working capital (which is a key component to the bonding limits)
- Strong equity (which allows you to weather a storm)
- Proper debt load/structure (which allows for cash flow)
Shortcut #3: Narratives that support your strength
Your surety wants to help your company succeed. When they know your company’s story and background, they’ll be better equipped to help. Your surety isn’t involved in the day-to-day happenings and “fire drills,” so they need to understand what’s happening in the organization (both now and in the future).
Share good news from your business! That’s always the easy part. What about the bad news? Be open about that too; explain and mitigate it. We’ve all had bad things happen – catastrophic jobs, customers who don’t pay, and so on. Our bond managers and sureties understand that. They just want to know what you’re doing to address it going forward.
So, what can you do right now to build a relationship with your bonding manager and surety?
Reach out to them. This doesn’t have to be anything elaborate – a simple phone call does the job.
Provide accurate and timely financial statements. They need to know what they’re working with, so they can help you make decisions.
Understand the financial ratios/numbers they need. This also helps with telling the narrative of your organization.
If you want to get more construction financial information like this, check out our courses here.