Financial Statements: The Backbone of your bonding program!
Your Financial Statement: The Foundation of Bonding Success
Let’s face it—your financial statement might not be the most exciting part of your business, but it’s absolutely critical when it comes to bonding. Think of it as your business’s resume. It tells your story, highlights your strengths, and assures sureties you’re equipped to handle the jobs you’re bidding on.
But here’s the catch: not all financial statements are created equal. To ensure yours stands out for the right reasons, here’s what you need to know.
Why Your Financial Statement Is Essential
Sureties aren’t just reviewing numbers—they’re looking for a comprehensive, clear, and consistent snapshot of your business’s financial health. A well-prepared financial statement shows them you can handle your current commitments and take on larger, more complex projects.
On the flip side, an incomplete or poorly organized financial statement can create doubts, potentially limiting your bonding capacity—or worse, leaving you out of the running for future opportunities.
What Every Financial Statement Should Include
To give sureties the confidence to support you, your financial statement should be prepared on a percentage-of-completion basis and include these essential components:
- Balance Sheet: Provides a snapshot of your assets, liabilities, and equity, serving as the foundation of your financial health.
- Profit & Loss Statement (P&L): A detailed account of your revenue, expenses, and net profit over the reporting period.
- Cash Flow Statement: Demonstrates how cash moves in and out of your business, showcasing your ability to manage cash effectively.
- Work-in-Progress (WIP) Schedule: Tracks ongoing projects, detailing contract value, costs incurred, billings, and profit margins.
- Completed Jobs Schedule: Summarizes the financial outcomes of projects completed during the reporting period.
- General & Administrative (G&A) Schedule: Breaks down overhead expenses, offering transparency into your cost structure.
- Schedule of Earnings: Provides insight into your revenue streams, showing what percentage comes from jobs in progress versus completed work.
- Aging of Receivables: A breakdown of receivables by 30, 60, and 90 days, including retainage. Bonus points if it includes subsequent collections, which help demonstrate your ability to follow through on outstanding invoices.
- Supporting Notes: Explains your accounting policies, significant transactions, and any unusual circumstances.
Prepare Financial Statements Twice a Year
To stay ahead, it’s essential to prepare a financial statement twice a year. One should be at your fiscal year-end to capture your annual performance. The other should be at an interim date that aligns with your business needs and bonding program. This ensures that sureties always have a current and accurate view of your financial health, which can be critical in securing bonding for new projects throughout the year.
Consistency Is Crucial
Sureties value a clear, consistent narrative—your financial statements should tie in seamlessly from year to year. This demonstrates stability and reliability. Big fluctuations or inconsistencies can raise red flags, so strive for accuracy and transparency.
Ideally, you should be prepared to provide three years of financial statements. This allows sureties to identify trends and assess your long-term financial health.
The Risks of Cutting Corners
Here’s what can happen if your financial statement falls short:
- Reduced Bonding Capacity: Sureties may limit your bonding or hesitate to back you altogether.
- Missed Opportunities: Poorly prepared or incomplete financials can exclude you from competitive projects.
- Overlooked Issues: A robust financial statement can also help you identify potential problems in your business before they escalate.
How to Get It Right
- Hire a Professional CPA
- Work with a CPA or accountant who understands construction and bonding requirements. They’ll ensure your financials meet the right standards and include all necessary details.
- Keep It Current
- Your financial statement should reflect your current financial standing, so update it regularly.
- Triple-Check for Accuracy
- Numbers that don’t align or financials that don’t tie back to prior years can create unnecessary complications. Ensure everything is consistent and complete.
- Maintain Detailed Records
- Organized records for project costs, overhead, receivables, and revenue make it easier to prepare a thorough financial statement—and give sureties confidence in your management.
- Hire a Surety Agent Who Reviews Your Statement
- Before your bank or surety sees your financial statement, have a trusted surety agent review it. At Loxme Group, we act as your eyes and ears, looking for consistency and accuracy. We offer advice to ensure your financial statement aligns with bonding requirements and positions you for success.
Your Financial Statement: The Backbone of Your Bonding
Your financial statement isn’t just paperwork; it’s your golden ticket to bigger opportunities and greater bonding capacity. By focusing on accuracy, consistency, and including all the necessary components—like an aging of receivables, subsequent collections, and interim updates—you can position your business for growth and success.
At Loxme Group, we’re here to help. Whether it’s reviewing your financials, answering your questions, or working with you to secure more bonding, we’ve got your back. Let’s work together to open the doors to your next big opportunity.
Give us a call—we’re ready to help you succeed!