Author, Andy Roberts, Surety Group Leader, Rancho Mesa Insurance Services, Inc.
With contract amounts increasing, our surety team continues to have more frequent conversations with our clients about the importance of preparing their year-end financials. A company’s financials, their balance sheet and an income statement, are the primary sources of information that a surety uses when establishing a contractor’s bond program. The way this information is presented is very important as it determines the amount of credit that a bond company is willing to extend. There are a few different options for presenting year-end financials, with the two most common being internal financials and CPA reviewed financials.
Internal statements are prepared either by the contractor in-house, or by a hired bookkeeper, and are often accepted by surety companies for contractors that do not bond frequently and/or only bond smaller projects under two million dollars. The reason for this limitation is internal statements are not viewed as being overly reliable because they have not been prepared and verified by a third-party CPA. If a contractor is looking at a bigger job or looking to grow their bond program, then it is worth the investment to have a CPA complete a review for the fiscal year-end financial statement.
A review from a CPA provides a deeper dive into a contractor’s financial statements and while there is a larger cost associated with a review, typically between $10,000-$15,000, the surety gains a greater understanding of the company’s financials over the internal statements. Additionally, they consider a CPA review more reliable and trustworthy, thereby willing to offer increased bonding capacity to qualified contractors.
While providing CPA reviewed financials does add additional overhead to a company’s budget, it can be vital to ensure the maximum bonding capacity is provided when it is needed the most. Furthermore, it is important that contractors select a competent, proactive bonding agent and construction CPA to map out a successful strategy for year-end financial preparation. The right partnership can help your firm build the highest possible level of bond credit as you build toward the future. For more information about how we can help determine which level of preparation is appropriate for your business, please contact me at aroberts@ranchomesa.com or (619) 937-0166.