What Sureties and Bonding Agents Look For In a Contractor’s Financial Statements

Danny Shobe, CPA, CCIFP

Member, Charleston Office 

As you look to enter a New Year after celebrating another Christmas and New Year’s holiday season, most of you are shifting your focus to closing out the books for your business including the preparation of the year-end financial statements and tax returns.  Obviously this can be a very busy time of year for most of you and it can be one of the most important times of the year as you determine the final results of your previous year’s work.

Knowing how important the financial condition of your business is to your bonding program and the ability to bid future work, we thought it would be helpful to provide some insight as to what bonding agents and sureties look for in your financial statements when making decisions on your future bonding program requests.  In doing this we interviewed several local bonding agents to get their take on two basic questions that may help you better understand what they look for when they receive your financial statements and what you will need to do in order to expand and grow your bond program.


The first question we asked was “What are the top 3 things you look for in a contractor’s financial statement and why?”  The question tried to dive a little deeper than the obvious basic issues of providing a statement that is a) timely and relevant , b) includes the appropriate note disclosures that answer the obvious questions without the user asking, and c) includes the necessary contract schedules that report on the contractor’s workload status, over/under billings that agree to the basic financial statements, and backlog.  The top 3 responses were: 

  1. Working capital – working capital is essentially the Company’s current assets in excess of the current liabilities.  Working capital is representative of a Company’s liquidity and shows its ability to pay bills and meet its obligations.  A very important component of working capital is “cash on hand”.  Most of you have heard the old saying “Cash is King” and it is never more important than in a contractor’s financial statements.
  2. Net Worth – net worth is basically the net equity of the company and is representative of the accumulated profitability of the company over its existence.  A strong net worth is indicative of the historical success of the entity, dedication to leaving profits in the business for the business’ future growth, and the ability to help weather slower years and downturns in the future.
  3. Profitability – profitability reflects the overall current period success of the business, but it shows much more than that.  It is also indicative of a few other things such as the ability of an entity to manage work successfully by controlling costs and staying on top of the ever changing environment on a project, and the entity’s ability to appropriately bid work in order to be profitable and to avoid unknown costly surprises as the job is completed.


The second question we asked was “What are 3 pieces of advice that you usually give contractors in connection with making their financial statements better in order to improve their bond program?”  The top 3 responses were:

  1. Secure a suitable line of credit – businesses should work on obtaining a suitable and primarily unused line of credit in times when you don’t need it.  It can be easier to obtain the line of credit when you don’t need to use it because it probably means the financial position of the business is usually better at that time.  It was also advised, if possible, to obtain a line of credit that is secured by long-term assets rather than using and tying up accounts receivable or other short-term assets as collateral.
  2. Organize an iron-clad team of professionals – the team should include professionals that have a significant level of experience in the construction industry and should include a bonding agent, CPA, and attorney.  These professionals need to have the ability to communicate with each other while having the best interest of the contractor in mind so they can work together in helping the contractor grow.
  3. Develop the ability to provide quality internal information – in order for a contractor to build and grow their bonding program, they will need to be able to position themselves to be capable of having a qualified accounting and finance staff, or third party CPA, to regularly provide timely internal financial statements and work-in-process schedules throughout the year and communicate progress on projects with the bonding agent on a regular basis.  This information and regular communication all play an important role in building the relationship and trust that allows an agent to push hard to convince the surety to stretch for the contractor when they desire to bid new work that pushes the limits of their current bond program.


If you’re already doing most if not all of these things that is great, but if your Company is not currently doing them or focused on all of them, we hope sharing the viewpoint of the bonding agent/surety will help you better understand why they are requesting you to consider them.  Keep in mind, like it was mentioned with the line of credit, growing and improving your bond program and relationship with the agent when you don’t need a bond is much easier than scrambling to do these things when you are in need for a quick turnaround on a bond request.

Suttle & Stalnaker has a significant amount of experience in the construction industry.  We have the experience of being in public accounting but also the actual experience of working directly for contractors in their accounting/finance departments.  If we can assist you by becoming a part of your “iron clad team of professionals”, please reach out to us.  We would love to be part of your team.

We would like to express a special thank you to the following agents for taking the time to provide input into this article and allowing us to interview them:

  • Andrew Teeter – USI Insurance Services, LLC
  • Jeff O’Dell – George H. Friedlander Company
  • Ryan Wingrove – Thornburg Insurance Agency
  • Jeremy Stanley – McGriff Insurance Services, Inc.
  • Ross Johnson – Mountain State Insurance Agency

Danny Shobe is a Tax Member in the Charleston Office of Suttle & Stalnaker, PLLC.  Danny has over 10 years of public accounting experience and over 12 years of controller experience in both the construction and oil and natural gas industries.  He is responsible for preparing and reviewing tax returns, providing tax consultation and planning for individual and business taxes, and communication with clients during the course of engagements. Danny holds the Certified Construction Financial Industry Professional (CCIFP) certification which is obtained through the Institute of Certified Construction Industry Financial Professionals.