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Financial Checklist to Get Surety Bonding for Contractors

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A brief overview explaining the importance of accurate financials in obtaining surety bonds. Highlight how this checklist can simplify the process and make contractors more “bondable.”

Section 1: Essential Financial Documents

Ensure you have the following documents ready:

  1. Balance Sheet: Reflect your company’s assets, liabilities, and equity. Also ensure it is up-to-date and error-free.
  2. Profit and Loss Statement (P&L):  Show your company’s profitability over time. Also include a detailed breakdown of revenue streams and expenses.
  3. Cash Flow Statement: Demonstrate the cash moving in and out of your business. You will need to prove you have sufficient liquidity to handle current projects
  4. Tax Returns: Provide at least the last three years of corporate tax returns. Make sure it aligns with your profit and loss and balance sheet
  5. Accounts Receivable (AR) and Accounts Payable (AP) Aging Reports: Show detailed tracking of what’s owed to you and what you owe.

Section 2: Key Financial Ratios to Monitor

Surety providers assess these ratios to gauge your financial health:

  1. Current Ratio: Assets ÷ Liabilities (Aim for 1.5 or higher).
  2. Debt-to-Equity Ratio: Total Liabilities ÷ Equity (keep it below 3:1).
  3. Working Capital: Current Assets-Current Liabilities (positive working capital is a must).
  4. Gross Profit Margin: Gross Profit ÷ Revenue (higher margins show efficiency).

Section 3: Accounting Best Practices

  1. Keep Books Current: Regularly update your financial records (monthly at a minimum).
  2. Separate Personal and Business Finances: Maintain separate accounts to avoid confusion.
  3. Use contractor-friendly software: leverage tools like QuickBooks or Xero for automated reporting.
  4. Reconcile Accounts Monthly: Avoid discrepancies between your bank statements and bookkeeping records.

Section 4: Preparing for Underwriter Questions

Be ready to answer these financial questions:

  1. What is your current cash position?
  2. Do you have sufficient working capital to complete bonded projects?
  3. How do you manage cost overruns and unforeseen expenses?
  4. Can you provide a list of current and completed projects?

Section 5: Documentation for Ongoing Projects

  1. Work-in-Progress (WIP) Report: Include details like project name, contract amount, percentage completed, and remaining costs.
  2. Backlog Report: Show your current and upcoming work commitments.

Section 6: Surety Bonding Checklist

  • ✅ Financial statements prepared and audited by a CPA.
  • ✅ Key financial ratios meet underwriter standards.
  • ✅ Tax returns filed and up-to-date.
  • ✅ AR/AP aging reports reflect healthy cash flow.
  • ✅ WIP and backlog reports completed.
  • ✅ Business structure documentation (e.g., LLC, corporation filings).
  • ✅ Surety-specific application forms completed.
  • ✅ A letter of recommendation from your bank or accountant (optional but beneficial).

Section 7: Bonus Tips

  1. Build a Strong Banking Relationship: A line of credit or strong references from your bank can support your application.
  2. Improve Financials Before Applying: Pay down high debts and resolve outstanding liabilities.
  3. Work with an Experienced Surety Agent: They can guide you through the bonding process and recommend improvements to your financial presentation.

Conclusion:

By following this detailed checklist, contractors can present their financials with confidence and improve their chances of securing surety bonds. Whether you’re a small contractor or managing large-scale projects, this guide ensures you’re prepared every step of the way.