Why Your Financial Statements Matter to Bonding Agents—And How to Improve Them 

by | Sep 13, 2024

As a construction company owner, you know that securing bonding is essential for winning new projects and growing your business. But did you know that your financial statements play a crucial role in the bonding process? Surety agents face a number of frustrations when reviewing financials, and these issues can significantly impact your ability to get bonded. 

Here are the biggest frustrations surety agents have — and why addressing them can help you improve your bonding chances: 

1. Late Financial Statements

The Issue: Timely financials are essential for bonding agents to evaluate your ability to meet project obligations. Late or delayed reports raise red flags and create uncertainty. 

The Impact: Late financials make it difficult for agents to assess your current financial position, delaying the bonding process. This could jeopardize your chances of securing new projects or maintaining existing ones. Consistently late financials may also suggest poor financial management, which increases your perceived risk. 

2. Profit Fade 

The Issue: Profit fade happens when your profit margins shrink as the project progresses. This can be caused by underestimating costs or project mismanagement. 

The Impact: Profit fade worries surety agents because it shows that your financial projections may not be reliable. Repeated profit fade signals inefficiencies or poor project execution, raising concerns about your ability to manage future projects profitably. 

3. Work-in-progress (WIP) Schedules 

The Issue: WIP schedules provide a snapshot of your ongoing projects, showing costs incurred, completion percentages, and profits or losses. Incomplete or inaccurate WIP schedules prevent surety agents from getting a clear view of your current obligations. 

The Impact: Bonding agents rely on WIP schedules to assess your cash flow, project management capabilities, and whether you can handle more work. Inaccurate schedules can hide cash flow problems or billing issues, making it harder for agents to evaluate your bonding capacity. 

4. Inaccurate or Poorly Prepared Financial Statements 

The Issue: Financial statements that are poorly organized or don’t follow accounting standards can confuse bonding agents and create uncertainty about your company’s financial health. 

The Impact: If agents can’t get a clear picture of your financials, they’re more likely to see you as a risk. This can delay the bonding process or lead to lower bonding limits, restricting your ability to take on bigger projects. 

5. Over-reliance on Debt

The Issue: Bonding agents want to see that you have sufficient working capital and liquidity without relying too heavily on debt. 

The Impact: High levels of debt raise concerns about your ability to meet long-term obligations. If your debt levels are too high, surety agents may be hesitant to bond you, as your financial obligations to lenders would take priority over bond claims. 

6. Unclear Cash Flow Position

The Issue: Construction is a cash-intensive business, and surety agents need a clear view of your cash flow to determine your ability to manage ongoing projects and meet expenses. 

The Impact: Poor cash flow management can result in delayed payments to subcontractors and suppliers, leading to project delays or even defaults. Surety agents want to see solid evidence that you’re effectively managing your cash flow before they feel comfortable bonding you. 

Why This Matters to Your Business 

Surety agents view bonds as a form of credit, and your financial statements are their primary tool for evaluating the risk of default. The issues listed above can create significant uncertainty for bonding agents, making it harder for them to trust your company to fulfill its obligations. 

Financial instability: Late or inaccurate financial statements suggest deeper problems in your financial management, increasing the likelihood of default. 

Project mismanagement: WIP schedules and profit fade highlight how well (or poorly) you manage your projects. Inconsistent performance raises your risk profile. 

Delays in bonding: Without clear, accurate, and timely financials, bonding agents can’t make quick decisions, which delays the bonding process and puts new projects at risk. 

PriceKubecka Can Help You Improve Your Bonding Chances 

PriceKubecka specializes in construction accounting and knows exactly what surety agents are looking for. We can help you get your financial statements in order, ensuring they are accurate, timely, and transparent. By working with us, you’ll not only improve your chances of securing better bonding terms but also strengthen your relationship with bonding agents — giving your business the foundation it needs to grow. 

Contact PriceKubecka today to see how we can help you prepare the financials that bonding agents want to see and position your company for future growth.