Increasing your bonding capacity provides you with the ability to bid on larger and larger jobs, increasing the growth of your company and furthering your success. How to increase your bonding capacity is where many contractors get lost, which is understandable as there can be a lot of moving parts to consider.
There are three things you can do to increase your bonding capacity immediately without a deep dive into the accounting profession. Each tip is broken down into specific actions you can take where you’ll see your bonding capacity expand in just 90 days and is suitable for contractors newer in business or more seasoned.
Strengthen your Company’s Financials
The first thing a contractor can do to increase their bonding capacity is to strengthen your company’s financials. How you do this is two primarily twofold:
- Limit your fixed asset purchases like equipment or real estate
- Retain earnings in the construction company
Some contractors struggle with the first tip as the equipment is needed to perform the jobs for which you’re trying to get bonded. To avoid any confusion, there is nothing wrong with buying equipment. This point is meant as you should consider weighing the need for the new equipment against the need for working capital to support your company’s bond program. Every dollar that is used to purchase a fixed asset, like new equipment, will lower your working capital and can reduce your overall bonding capacity.
The second point is directed at retaining profits in your company, which can come across as obvious, but is worth stating. It’s important to remember that the biggest investment you can make is in yourself and your business, which means avoiding the temptation to invest in other assets personally. Every contractor wants to reap the benefits of their hard work, which comes in time. It is just important to prioritize the company’s financial strength first, because it is the Golden Goose that, with the necessary bonding capacity, will allow you to grow your profits. Having the right surety agent can be a great guide in this area, to better prepare for applying for a greater-sized bond.
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Improving your Financial Reporting
The second thing a contractor can do to increase their bond capacity is to improve their financial reporting. While it’s tempting for many contractors to not want to invest too much time or money into this area, it’s imperative you do to increase bonding capacity:
- Use a construction-oriented CPA
- Get a CPA financial statement
- Improve your ability to produce accurate internal financial reports
- Increase your bank line of credit
Beginning with the first point, construction accounting is a unique area and requires unique knowledge and experience. If you are working with an accountant, whether internally or externally, be sure their expertise is in construction. A CPA is an important person to have as a resource and the right surety agent can help pair you with a construction-oriented CPA.
Piggy-backing off the first point, having a CPA financial statement is ensuring your statements are without mistakes and presented fairly. It’s akin to having paperwork notarized, in that having your financial statements prepared by a CPA means they’ve been done correctly and give an honest view of your finances to a surety.
Improving your ability to produce accurate internal financial reports is taking the time to invest in having quality internal financials. We have written an article that explains this in-depth and that you’ll find very useful for saving money and increasing bonding capacity:
How Investing in Quality Internal Financials can Increase Bonding Capacity – CSBA
Increasing your bank line of credit is a big help in increasing bonding capacity, as studies show that more contractors fail during an expansion due to running out of cash. Increasing your access to money helps a surety be more comfortable with your growing bond capacity needs. If a bank line of credit isn’t an option, then a home equity line can help in this regard too.
Working with the Right Surety Agent
Not all surety agents are the same. Some sureties are best at working with newer construction companies while others only take the more seasoned contractors or specific types. In either case, a surety agent can help match you with the surety that best fits your situation. Having the right guide in a surety agent quickens all the steps above and prevents missteps during the bonding process as well. Just like having a construction-oriented CPA, you want a surety agent that is well-versed in your unique situation.
To help you decide if a surety agent is doing right by you and your goals, we recommend reading this article on how to determine if you are getting top-notch service from a surety agent:
4 Ways to Determine if You Are Getting Top-Notch Service From Your Surety Agent – CSBA
While having the right surety agent by your side will help with the other steps to increase your bond capacity immediately, these steps can be taken on your own. It’s important to us at CSBA that contractors who build California become more knowledgeable on the financial areas of our industry, and help contractors understand the different aspects of the contractor business that can better help them succeed.
We at CSBA have extensive experience and knowledge working with both newer contractors and the more seasoned businesses to grow their bond capacity, guiding them to largerbids, and securing continuous success. We are committed to providing the best possible service to our clients and investing in your company’s needs while being upfront regarding challenges you may face.
Take action now to increase your bond capacity, each step above is doable today, and with the right surety agent, like CSBA, your bond capacity has no end for growth in sight.
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