Preparing for Bonding Needs for the New Year

With the new year around the corner, it’s the ideal time to look ahead and plan for your goals and business needs, including the surety bonds you’ll require. It can appear contradictory to plan for bonding capacity and bond sizes for jobs when you may not know what the required bond size will be, but you can take meaningful steps to prepare. 

Now is the time to get set up for next year’s bonding needs and the advice below can guide you to a great start for the next 12 months.

End-of-Year Financials

In previous articles, we’ve discussed the importance of bonding capacity and what roles it plays in growing your business. As you likely know, company financials are a large part of getting surety bonds, but your end-of-year internal financials become very important for your bonding capacity the following year. Surety companies primarily base your bonding capacity on the year-end financials, as it’s the most accurate and realistic view of a contractor’s financial situation. This is primarily due to the year-end financials including all the expenses that don’t happen regularly throughout the year, such as bonuses, distributions, and contractors having done their tax planning. 

Plan Ahead

Next you’ll want to consider what type of opportunities you’ll have in the coming year for work.  Take a step back and consider the bigger picture, asking yourself questions such as, “do I expect the market to be more or less competitive” or “do I anticipate my revenue and backlog increasing or decreasing”, and perhaps more importantly, ” do I plan on pursuing larger projects?” Beyond this introspection about your business, you should plan as well for the next year in more concrete ways. Consider sitting down and outlining plans for equipment purchases and more space that you’ll likely require. 

If you’re unsure how plans you make can affect your year-end internal financials and therefore your bonding capacity, it’s a good time to call your surety agent and discuss the potential impact. 

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How to Prepare for Your Upcoming Bonding Needs

Proactive planning is important to give you time to put things in place, for example, looking for a construction-oriented CPA to prepare financial statements, increasing your bank line of credit, and retaining more money in the company instead of making distributions to build up the capital. All of these are factors in surety bonds, and if you’re planning to bid on larger projects, then larger bonds are needed. Now is the time to sit and ask yourself where you want your business to go, what things you need, and how you can get there more easily next year. 

We at CSBA have over 225 years of combined surety experience and 4 members of our team were underwriters for major surety companies, which gives us insights into how to prepare for the next year from large surety providers. We take pride in helping our contractors prepare for the next steps in their business and view ourselves as partners in making that road an easier one. If you’re interested in planning ahead and clearing the way for all your business can be, we encourage you to speak with one of our surety experts and really ring in the new year. 

Dan Huckabay
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Dan Huckabay


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