Rancho Mesa's Alyssa Burley and Account Executive in the Surety Department, Andy Roberts talk about how year-end financial statement preparation influences a company’s bonding program.  

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Director/Producer/Host: Alyssa Burley

Guest: Andy Roberts

Editor: Megan Lockhart

Music: "Home" by JHS Pedals, “News Room News” by Spence

© Copyright 2021. Rancho Mesa Insurance Services, Inc. All rights reserved.

Transcript

[Introduction Music]

Alyssa Burley: Hi, this is Alyssa Burley with Rancho Mesa’s Media Communications and Client Services Department. Thank you for listening to today’s top Rancho Mesa news brought to you by our Safety and Risk Management Network, StudioOne™.

Welcome back, everyone. My guest today is Andy Roberts, Account Executive with the Surety Group with Rancho Mesa. Today, we’re going to talk about how year-end financial statement preparation influences a company’s bonding program.  Andy, welcome to the show.

Andy Roberts: Hi Alyssa, thank you so much for having me back in StudioOne. 

AB: Of course, it’s nice to have you.

Many of our listeners are contractors who are required to get surety bonds. If a contractor is looking to qualify for a contract surety bond program, what should the contractor’s team be aware before they start the process?

AR: Well, first, it’s important to know that a company’s financial statements will be required by underwriters in most cases.  This is largely due to the fact that a company’s financials, you know, their balance sheet and their income statement, represent the primary source of information that a surety will use when building a bond program. Um, and the way this information is presented goes a long way in determining the amount of credit that a bond company is willing to extend. 

AB: Can a contractor provide their internal balance sheet and income statement or is there more that is required?

AR: So, there are a few different options for presenting your year-end financials. The two most common are internal financials and the CPA-review financials.  

AB: Will you explain how internal financial statements are generated and when they could be used?

AR: Of course. So, 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 don’t bond very frequently and/or only bond smaller projects under one million dollars.  The reason for this limitation is internal statements are not viewed as being overly reliable because they have not been prepared by a third party CPA.  If a contractor is looking at a bigger job or looking to grow their bond program, then it’s worth the investment to have a CPA complete a review for the fiscal year-end financial statement.    

AB: Okay, let’s talk about CPA-reviewed financials. Why would a contractor spend the money to have a CPA review their financial statements if a surety will accept ones that are generated in-house or by a bookkeeper?

AR: That a great question, and one we get a lot. Um, a review from a CPA provides a deeper dive into a contractor’s financial statements and will usually include notes about the financial statements regarding their revenue, accounts receivable, accounts payable, and other financial events that occurred over the course of the year.  And, while there is a larger cost associated with a review, you know, between $10,000 and $15,000, as opposed to providing an internal year-end statement, the surety gains a greater understanding of the company’s financials over internal statements.  And, additionally, they consider a CPA review much more reliable and trustworthy, thereby willing to offer increased bonding capacity to qualified contractors.

AB: Are there any other benefits to using a CPA to review your financials?

AR: Providing CPA-reviewed financials adds additional overhead to a company’s budget, so that may seem like a negative, but having a CPA review the financials can be vital to ensuring the maximum bonding capacity is provided when it’s need it most. 

AB: Also, to emphasize the point, it is important that contractors select a competent, proactive bonding agent and construction CPA in order to map out a successful strategy for year-end financial preparation. 

The right partnership can help the firm build the highest possible level of bond credit as they build toward the future. 

Andy, if listeners have questions about their bonding program, what's the best way to get in touch with you?

AR: So, I can be reached at (619) 937-0166 or aroberts@ranchomesa.com.  And, finding an experienced CPA with a construction financials background can be a challenge. I can help recommend someone who can assist our listeners.

[Closing Music]

AB: Andy, thank you so much for joining me in StudioOne™.

AR: Thank you so much for having me, Alyssa.

AB: This is Alyssa Burley with Rancho Mesa. Thanks for tuning in to our latest episode produced by StudioOne™. For more information visit us at ranchomesa.com and subscribe to our weekly newsletter.