In Summary
Financial Credibility is the Foundation of Growth: To increase bonding capacity (single-job and aggregate limits), construction companies must move beyond internal reporting to CPA-prepared financial statements that demonstrate strong liquidity, positive cash flow, and healthy working capital.
Proactive Planning with a Construction CPA: Strengthening a surety relationship requires at least 12 months of lead time to optimize Work-in-Progress (WIP) schedules, manage tax strategies that don’t compromise net worth, and resolve financial “red flags” before bidding on larger projects.
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Construction companies that want to grow often focus on backlog, staffing, equipment, and new bidding opportunities. Surety bonding capacity also needs to be part of that discussion. A contractor may be ready to take on more work operationally, but the surety still has to decide whether it’s comfortable increasing support. That decision is based on risk. Sureties do not raise bonding capacity automatically. They look at the contractor’s financial position, liquidity, job performance, and overall ability to manage additional work. CPAs can help construction companies prepare for that review, especially in the area of financial reporting. To help clients, prospects, and others, Hanson & Co has provided a summary of the key details below.
Understanding Bonding Capacity
Bonding capacity is the amount of work a contractor can be bonded for at one time. It typically includes:
- Single-job limit, or the largest bond the surety will support on one project
- Aggregate limit, or the total bonded work the contractor can carry at once
Those limits directly affect growth, and increasing those limits usually requires a broad review of the business. That means looking at more than revenue alone. A surety wants to see whether the contractor has the financial strength, reporting quality, and project oversight needed to support more bonded work. That is where a CPA can help.
How CPAs Can Help Increase Bonding Capacity and Planning Ahead for Additional Capacity
CPA-Prepared Financial Statements — One of the clearest ways a CPA can help is by preparing financial statements that give the surety a better picture of the business. Many smaller contractors have historically relied on internally prepared statements. As a company grows and financing needs increase, CPA-prepared financial statements often become necessary.
That matters because the surety is not looking only at revenue or profit. It is reviewing the balance sheet, income statement, and supporting schedules to assess financial strength over time. If reporting is incomplete, inconsistent, or difficult to follow, the surety may see more risk. CPA-prepared statements can help improve the quality of that information and present the company’s financial position more clearly.
Construction companies are often in a stronger position when they begin planning for additional bonding capacity well before it is needed. In many cases, that process should begin with a construction CPA, like Hanson & Co, about 12 months or more in advance.
Key Financial Metrics — Sureties look at several financial metrics to assess whether a contractor can support more work. A CPA can help monitor those metrics and help explain how they affect the company’s position. Three of the most important are:
- Working capital, the difference between current assets and current liabilities. It helps to show whether the company can cover day-to-day obligations and absorb short-term costs.
- Net worth, total assets minus total liabilities. It reflects the company’s overall financial position.
- Cash flow, how money moves through the business. It helps to show whether the contractor has enough cash to cover payroll, materials, and other operating costs.
These metrics are the starting point; they help the contractor and the surety see stress points in the business. Working capital may not be keeping up with backlog. Net worth may not be strong enough to support additional risk. Cash flow may be tight because money is tied up in receivables or underbilling. A CPA can help management understand how those issues work together and how to improve.
WIP Reporting — The work-in-progress (WIP) schedule is a key part of the bonding conversation because it shows how open jobs are performing financially. It helps show whether projects are staying on budget, being billed on time, and producing the profit the contractor expected. Sureties look closely at that information because it can reveal whether current work is supporting the company’s financial position or creating new risk. A CPA should review the WIP schedule for accuracy and confirm that it aligns with financial statements. If there’s a discrepancy, that can signal reporting or compliance issues, which would likely be a concern for the surety.
Risk Management — Another important role of the CPA is identifying issues before they become larger concerns in a bonding discussion. Those issues may include excessive debt, slow collections, or a backlog that is growing faster than the company can support.
These problems do not always attract immediate attention inside the business, especially when the company is busy and winning work. However, they can weaken the contractor’s overall bonding picture. A CPA can help spot those patterns early, explain why they matter, and give management time to address them before additional bonding capacity is needed.
Tax Timing and Strategy — Certain tax and year-end decisions can affect the contractor’s financial position. A CPA can help management think through the timing of shareholder distributions, equipment purchases, and other transactions that may make sense from a tax standpoint but also affect working capital, net worth, or cash flow. That kind of planning can help the company avoid decisions that weaken its financial picture ahead of surety review.
Supporting Communication — Bonding capacity is not only about the numbers themselves. It is also about the story those numbers tell. A CPA can help management present that story more clearly by making sure the financial information is organized, consistent, and supported by the right detail. They can also help explain any changes in the business, so the surety has a clearer understanding of the company’s financial position and current performance.
That lead time gives management more time to strengthen financial reporting, address balance sheet issues, improve WIP schedules, and identify anything that may limit future growth. Bonding capacity is typically built over time rather than at the final stage of the bidding process. That’s why contractors are encouraged to start early.
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Construction companies that want to increase surety bonding capacity need to look beyond backlog and revenue. Sureties increase support only after evaluating risk across the business, and that review can affect whether the contractor is in a position to pursue larger or more numerous bonded jobs. If you have questions about the information outlined above or need assistance with another tax or accounting issue, Hanson & Co can help. For additional information call 303-388-1010 or click here to contact us. We look forward to speaking with you soon.