No business works in a vacuum. In fact, the most successful businesses rely on the expertise of professionals doing related work within the industry. By forming synergistic relationships with these colleagues, we are able to contribute more holistically to the health of the field.
One of these professional groups we as bonding agents have a mutually beneficial relationship with is construction accountants.
When a contractor puts together a financial statement, they have three options:
Construction accountants perform the audit or review, while a compilation is homegrown and often done by the contractor himself, without any sort of professional input.
Audited financial statements are the highest quality, followed by reviewed. Audited financial statements are entirely professionally done, and provide the complete picture. Reviewed financial statements are looked over by a construction accountant, who will add notes and look for explanations of discrepancies so the bonding agent can read between the lines and get answers.
We encourage our contractors to get their financial statements audited or reviewed by a construction accountant. It may seem like a lot of money up front, but whatever they pay for the accountant they will save in their bond premium. When times get tough, having access to bonded jobs will often save a company from layoffs.
When looking at a contractor’s financial statement to assess if they’re eligible for bonding, we will often call on their construction accountant for clarifications. Sometimes the statements will indicate that a contractor doesn’t have enough working capital. The statement will show a modest amount of working capital and a large amount of accounts receivable. Often, in bonding considerations, accounts receivable are a not considered a liquid asset.
The notes of the accountant help the surety agent and/or the underwriter read between the lines. The accounting notes may explain that the accounts receivable was collectible in a very short time by discussing the aging process of that particular client’s accounts receivable, and therefore would reveal within a few short weeks there would be two or three times the working capital as the accounts receivable may be collected and not expanded for some time.
This level of transparency helps us see the whole picture, and often times, we’ll come to understand that a contractor is much more liquid than what would first appear. Therefore, with this clarification, the contractor would have a higher probability of having the bond issued to them.
We've been underwriting for 40 years working with only the most reputable surety carriers nationwide.
We can get you the answers you need in a matter of minutes.
We offer sound business advice to help you build your bonded business.
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