A detailed, CPA-prepared financial statement is among the most critical documents that bonding agents and underwriters require before bond approval. However, standard statements often lack the additional detail and industry-specific disclosures that sureties look for.

The Three C’s: Character, Capacity, and Capital

Bonding agents and surety companies assess contractors using the “three C’s” of surety underwriting:
• Character: Your company’s reputation, integrity, and management quality.
• Capacity: Your ability to handle the size, type, and complexity of projects being pursued.
• Capital: Your financial strength, including working capital, net worth, and profitability.
Surety bonds offer assurance to project owners, serving as a testimonial to a contractor’s operational consistency and financial stability. Underwriters require evidence of a strong track record, a healthy debt-to-equity ratio, consistent profitability, and reliable cash flow.
These criteria all feed into a single goal: proving your company has the strength and discipline to fulfill its contractual obligations. For larger projects, you will typically need a surety bond in the amount specified by the project owner, which is often—but not always—100% of the contract value.

Transparency Starts With Your Financials

Transparency begins with how you present your financials—and that’s where many contractors fall short. The more detail and clarity you provide, the easier it is for sureties and bonding agents to assess your company’s risk and capacity. Stronger, more detailed financial statements are critical to improving bonding capacity, enabling your company to secure bigger bonds for bigger projects. Conversely, falling short on key financial and operational benchmarks can limit your opportunities for growth.

Your bonding agent acts as your partner and liaison with the surety, so maintaining open and honest communication is in your best interest. Consistent, timely, and accurate financial statements, year after year, help build trust and solidify your relationship with bonding agents, ultimately supporting your business’s long-term growth.

Accuracy, Consistency, Profitability: What Sureties Look For

The in-depth review required by sureties often goes beyond what a generalist CPA firm provides. A construction-oriented CPA—one with extensive industry experience and relationships with surety agents—can help you prepare statements that meet these higher standards and maximize your bonding capacity.

To help contractors understand what ‘complete’ really means, here are details bonding agents value most:

Comparative Statements

One year isn’t enough. Sureties want to see a history of healthy gross profit margins, liquidity, and leverage—not just a single profitable year.

Work in Progress (WIP) Schedules

A full accounting of in-process and completed projects is needed for a complete risk assessment. A well-prepared WIP schedule should include contract value, costs incurred to date, estimated costs to complete, billings, and profit recognized. Ideally, WIP schedules are updated monthly, which also helps you better manage your business throughout the year.

Inventory

Inventory only adds value to working capital if it is job-specific and expected to be used in the near term. General inventory or excess materials not tied to an ongoing project are typically discounted or excluded by sureties.

Related Party Transactions and Owner Loans

Transparency is crucial. Bonding agents look closely at transactions with related parties, such as receivables or payables involving shareholders or affiliates. Loans to owners or affiliated entities will often be deducted from your current assets or net worth by sureties, as these are less liquid and can directly reduce your bonding capacity. Regular repayment schedules should be documented.

Aging of Receivables

Receivables outstanding over 90 days are generally discounted or excluded, as collectability becomes doubtful. If you can provide documentation showing significant subsequent collections, this may help your case, but sureties typically apply strict policies regarding aging.

Backlog Schedule (Pipeline Reports)

Sureties want to see not only what work you’ve completed, but also what’s ahead. A backlog schedule, showing contracts signed but not yet started, demonstrates that you have a strong pipeline of work—without overextending your resources. Too little backlog may worry sureties; too much may raise questions about your ability to deliver.

Cater to the Needs of Bonding Agents

All these details serve one purpose: to build trust. Trust is the currency that drives every bonding relationship. The more upfront, comprehensive, and clear you are in your financial statements, the easier you make the bonding agent’s job, and the more likely you are to secure favorable terms.

Avoid surprises. Just as a bank doesn’t want to discover an undisclosed liability, sureties do not want to be blindsided by financial or operational issues. Notify your bonding agent promptly about any material changes in your financial situation—no issue is too small to discuss.

Additional Red Flags and Best Practices

Bonding agents also watch for red flags, including:
• Rapid, unrealistic growth that outpaces your financial or management resources
• Repeated project losses or underperformance
• Significant changes in project type, size, or geographic area
• Frequent management turnover or ownership changes
• Litigation, claims, or unresolved disputes

To strengthen your bonding capacity, work with a construction-oriented CPA who can advise you on:
• Accelerating collection of receivables and minimizing those over 90 days
• Limiting non-essential owner distributions and loans to related parties
• Striking a balance between minimizing taxes and retaining enough profit to build net worth
• Maintaining accurate, monthly WIP and backlog schedules
• Providing regular, timely interim financial statements

Conclusion

With detailed, transparent financials and a proactive, open relationship with your bonding agent, you’ll be well positioned to take on larger, more profitable projects. By understanding and addressing what sureties are really looking for, you’re not just improving your bonding capacity—you’re paving the way for your company’s long-term growth and stability.

If you have questions about construction financials or bonding, our team is always here to help. Reach out for guidance tailored to your company’s needs.