Construction is booming. That’s good news for many construction companies looking to grow their business. For some contractors that means taking on new types of projects—both public and private—that require surety bonding.
While there is plenty of bond capacity available, not all contractors will qualify. Sureties use strict criteria for granting bonds and they work only with construction firms that can prove they are well run and know how to control risk.
How can you successfully position yourself with a surety? Here are five things sureties like to see you do:
- Maintain consistent financial reports. Demonstrating that you have well-established financial processes and reports shows your business is disciplined and on top of your company’s performance. Sureties assume you have standard reporting for tax and general business assessment but pay special attention to reports with more specific information such as under-billings, overbillings, and work in progress.
- Manage cash flow. Sureties carefully evaluate cash flow by looking at your ongoing business practices in combination with your financial reports. Consequently, in addition to cash flow reports, make sure you provide information that illustrates your sound accounting practices and how tightly you manage your projects, procurement, regulatory issues, and contract terms.
- Manage your subcontractors and suppliers. Increasingly sureties are evaluating how well you manage your subcontractors and suppliers, especially in regards to mitigating and transferring your own risk. Are you prequalifying your subs? Are they bonded? How do you assure lien waivers are signed and subs are insured? These are just a few questions a surety will want you to answer.
- Set up proactive alerts and reports. Identifying exceptions before they turn into a crisis is critical to project success and a great way to show sureties how you proactively manage and reduce risk on your jobs. Examples of reports and alerts you can put into place and discuss with your surety include overdue invoices, back-logged change requests, lien waivers not yet received, and projects that are underperforming or under-billed.
- Put your best foot forward. When you apply for a bond, make sure your reports are professionally formatted, easy to read, and contain relevant and accurate data that shows a recognizable financial pattern over time. Be prepared to interpret your company’s data, and bring out your personal character, honesty, and integrity.
Making sure you have proper company processes and management tools in place will make you a strong candidate for current and future contract bonds. Having a sound CPA statement is just the start. You also have to prove you know how to successfully run your construction business.
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