Bonds are an essential part of doing business in the construction industry.
As more and more construction projects are being started, the need many contractors to obtain bonds for the first time, or step up to higher-value bonds for larger jobs has become especially important. Government agencies, private companies and many general contractors often require a specific bond to bid on a project, guarantee satisfactory performance on the project or warranty the services performed. Much like an insurance policy, a bond ensures the project sponsor that the work will be completed without additional financial costs being incurred and that the contractor is in a strong enough financial position. A construction company’s ability to obtain new work, in part, depends on their bonding capacity. To secure larger bonds, construction companies should work with a construction CPA who can tell the right story with more numbers than words, presenting professional financial information in a manner expected in the construction industry. To help clients, prospects and others understand where CPAs can drive value in the process, Hanson & Co. has provided a summary of key details below.
- Financial Statement Presentation – This is one of the key areas where your CPA firm can have the biggest impact. Because most bond agents require an applicant’s financial statements to be audited, reviewed or compiled by a CPA firm, it’s important to work with a firm that understands what agents want to see. Most importantly, those individuals expect to see certain information in a construction industry-specific format. Remember, the financial statement is where all the information about your company lives, including past performance, profitability, debt, cash flow, receivables and a myriad of other information. Agents will be carefully reviewing and analyzing the details to ensure you meet their bonding standards. Partnering with an experienced CPA well versed in the construction industry will give you access to an essential perspective, guidance, and information that can help tell your financial story in the most beneficial way possible.
- Optimizing Cash Flow – The success of any business is dependent on the ability to have access to cash when needed. Given the project nature of construction work, it’s important to have a fine-tuned cash flow management process. If a company is not able to maintain a consistent flow of cash, it’s unlikely they will be able to meet obligations when lines of credit or other means of financing is necessary. An experienced CPA can help enhance your billing, accounts receivable, payroll, lease vs. purchase decisions and other policies to ensure the best cash flow position possible.
- Tax Planning – Taxes are a necessary part of doing business. Through proper tax planning construction companies can position themselves in the best light possible. With the passage of the tax reform bill in late December, there are several changes that will positively impact construction companies. This includes bonus depreciation, increased Section 179d expensing and changes to accounting procedures. There were also changes that may reduce or eliminate opportunities for industry companies. Proactive tax planning, especially this year, will open the door to new opportunities and help tell a compelling story for bonding companies.
- Credit Score – Although it may seem more relevant to individuals, a good credit score is essential in the bonding process. Remember that an agent wants to be comfortable with your company’s ability to manage finances and maintain profitability from project start to completion. A CPA can provide guidance and specific steps that can increase your credit score over time, such as strategies for retaining profits, reducing expenses and paying off debt.
Increasing bonding capacity is a crucial step for construction companies and contractors as they seek to work on bigger projects. Working with a construction specific CPA who can review your company financials, provide direction and present essential financial information can make the difference. If you have questions about increasing bonding capacity or need assistance with an audit, tax or accounting issue, Hanson & Co. can help. For additional information, please call us at (303) 388-1010 or click here to contact us. We look forward to speaking with you soon.