How to Increase Bonding as a Small Business

Contractors large and small know that to live in the public works arena, bonding is the lifeblood.  As such, a contractor can only grow as its bonding does which can sometimes be a catch 22.  A bond company will increase bonding largely on the strength of the contractor’s financials, yet a contractor may need the larger bonds to strengthen their financials.  This dilemma seems to prove true with small business all too often.  Here tips to help increase bonding:

• Reinvest profits into the company – It’s hard to make money in construction, especially in today’s economy, and with all the hard labor everyone wants to be able to enjoy its fruits! However, resist the temptation to buy the new car, boat, or take that vacation, and leave the profits in the company.  Ideally, leave it as cash. There are scenarios when purchasing equipment, software, or other assets makes sense, but consult your bond agent first.  By leaving the cash in the company it not only increases equity, but also working capital.  And both are important in order to qualify for larger performance and payment bonds.
• Upgrade financial presentation – Every small company gets to a point when it’s time to upgrade the business financial presentation from a basic internal accounting software to hiring a CPA to produce a quality financial statement.  While most small business view this upgrade as an expense, those that truly have aspirations of growing view this as an investment.  A quality CPA reviewed financial statement will run a company between $6k and $15k, but the increase in bonding and often reduction in rate will usually pay for the investment.  A contractor should ALWAYS consult with their bond agent prior to making this investment.
• Work ON your Business, not IN your business – I’m guilty of this as well.  I think most small businesses are wearing so many different hats on day to day operations, they forget about what’s most important to grow. The strategic planning, developing corporate culture, cultivating and building relationships, hiring quality people, etc. are all examples of working ON the business. If a small contractor doesn’t make time for that, he will always be a small contractor.
• Listen and Trust Your Agent – First off, find an agent that only does bonds, not your insurance agent who writes bonds as a compliment.  You wouldn’t hire a CPA to give you legal advice; don’t hire your insurance agent to give you sound bonding advice.  Your bonding agent will be able to advise you of various bond programs and which is best for your business.
• SBA, Structured Programs, Bond Assistance Programs – Our previous blogs have discussed these tools as additional ways to increase bonding.  However, just like your business there are many different aspects that can all be improved to increase profitability, there are several other tools to use to help increase bonding.  Point is, if a contractor is utilizing the SBA, a structured bond program, or some other assistance program, they should also be working on other methods to increase bonding.

If you need any help with increasing your bonding, or just have general questions feel free to comment or call us direct at 877-654-2327.