Author, Matt Gaynor, Director of Surety, Rancho Mesa Insurance Services, Inc.
November is the month that I meet with our contractor clients to discuss how the current year will end up and begin planning for the next year. We will also touch base regarding the items our surety carrier partners will want to hear about when we schedule our annual meetings (after the December 31, 2022 financial information is available).
Similar to having an open book test, if our contractor knows in advance what will be requested, they can prepare accordingly and anticipate any “red flag” type items that might be of concern for the bond company. Below is a general list:
Items on the balance sheet with an emphasis on cash, accounts receivable, borrowing against the bank line of credit, and equity.
An aging schedule of the accounts receivables will be very helpful to determine what amount is in excess of 90 day collections.
The revenue and net profit or net loss from the income statement to reflect if 2022 was a profitable or losing year. Also, a discussion of any Paycheck Protection Program (PPP) money that was loaned to the contractor and if the entire amount was forgiven in 2022.
They will review the work in progress and completed contract schedules to discuss which projects were successful and others that lost money. Be prepared to provide additional detail on any problems connected with losing projects and steps taken to correct this on future work.
Potential new opportunities you anticipate in 2023. Will any of these projects exceed your current program, contain work outside your normal scope or geographic territory? Be prepared to address how you will manage additional risk that may be a concern to the bond company.
Tax Planning. What additional withdraws do you anticipate to cover taxes, etc.?
If you would like more information on how your bond carrier might analyze your 2022 financial information, please contact me at (619)937-0165 or mgaynor@ranchomesa.com.