Getting Bond-Ready: 5 Steps to Strengthen Your Financial Profile

Getting Bond-Ready: 5 Steps to Strengthen Your Financial Profile

A performance bond is essentially a line of credit from a surety, guaranteeing project completion. To secure the best bonding capacity and rates, your company’s financial health must be transparent and strong.  Securing a performance bond starts long before you bid on that next project. Here's how to position your company for bonding success:

1. Keep Your Books Current 

Surety companies need to see up-to-date financials. Surety companies prefer financials prepared by a Construction-Focused CPA, ideally at the Review or Audit level. This independent assurance gives them confidence in the accuracy of your revenue recognition and job costing. Timely submission (within 90 days of year-end) is also critical.

2. Optimize Your Working Capital

The first thing underwriters check is your Working Capital (Current Assets minus Current Liabilities). This is the cash cushion available to fund projects. Maximizing cash and minimizing short-term debt improves this vital ratio. Ensure your Balance Sheet clearly shows strong liquidity—it's the foundation of your bond capacity. Strong working capital shows you can handle project cash flow. Aim to maintain a healthy current ratio (current assets to current liabilities) of at least 1.5:1.

3. Strengthen Your Balance Sheet 

Pay down unnecessary debt, collect outstanding receivables quickly, and avoid taking on too much work at once. A clean balance sheet opens doors to larger bond capacities.

4. Document Your Track Record 

Your Work-in-Progress (WIP) Schedule is as important as your Balance Sheet. It details every project's progress, profit projection, and cost status. An accurate, current WIP demonstrates superior project management and shows the surety that you fully understand your profitability and financial risk on every active job.

5. Establish Banking Relationships 

A strong relationship with your bank demonstrates financial stability. Regular communication and a clean banking history support your bonding application.

Ready to secure that next major contract? Start preparing your bond-ready financials and apply today! 

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