Rancho Mesa's Alyssa Burley and Account Executive in the Surety Department, Andy Roberts discuss how improving your net worth impacts a bonding program.

Show Notes: Subscribe to Rancho Mesa's Newsletter.

Request a Quick Capacity Analysis
Ep. 97 Bonding Capacity
Ep. 30 Working Capital

Director/Producer/Host: Alyssa Burley

Guest: Andy Roberts

Editor: Lauren Stumpf

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

Transcript

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 in the surety group with Rancho Mesa. Today we're going to talk about how improving your net worth impacts a bonding program. Andy, thanks for joining us.

Andy Roberts: Hi, Alyssa. Thank you so much for having me back.

AB: Andy, you've written and recorded several articles and podcasts where you take a deeper look into properties of a balance sheet that will affect a contractor's bonding capacity and summarizing working capital. And, we'll include links to both of those podcasts in the episode notes, if listeners are interested. Yet another very important component on the balance sheet that surety underwriters will consider is net worth, also referred to as equity. Will you give a brief description of what equity means with regards to a balance sheet for our listeners?

AR: Absolutely. So equity is calculated by subtracting a company's total liabilities from their total assets on the balance sheet and is a measurement that is used to determine their long term liquidity; and from a bonding standpoint, surety underwriters love to see equity increase year over year.

They analyze each item in the equity section of the balance sheet, such as common stock, additional paid in capital and shareholder's loans. But one item that carries a particularly large amount of weight is retained earnings.

AB: Will you elaborate on why retained earnings is so important from an underwriting perspective?

AR: Happy to. So, retained earnings represent the net income or profit that a company reinvests in its business after distributions are paid to the shareholders, and it heavily influences the overall equity of the company. So this is important to note because as a general guideline, we say a contractor can qualify for an aggregate bonding capacity that is 10 times their company's equity. So contractors that are looking to maintain a strong bond program or increase their bond program will want to retain as much profit in the company as they can because this allows their retained earnings and their equity to continue to grow throughout the years.

AB: So it sounds like it's imperative for a company to have a strong balance sheet or, more specifically, net worth, if they want to impress the bond underwriter.

AR: Yes. Many contractors building a strong bonding capacity can create opportunities for significant revenue growth. It's important for our listeners to be educated on the critical elements like retained earnings when they're reviewing their balance sheet. This also makes it even more important to have a knowledgeable and proactive bonding agent on your side, someone who understands your business, the overall goals, can analyze your balance sheet, and can discuss strategies with you to reach optimal bonding capacity. So, listeners, you can start this process and leapfrog your competitors when you request a quick capacity analysis from our surety team, and we will provide you with a detailed evaluation of what your bonding capacity should be.

AB: And we'll put a link in episode notes so our listeners can request that quick capacity analysis. Andy, if listeners have questions about their equity and bonding program, what's the best way to get in touch with you?

AR: So I can be reached directly at (619) 937-0166 or at aroberts@ranchomesa.com.

AB: Andy, thanks for joining me in StudioOne.

AR: Thank you so much for having me.

[Closing Music]

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.