If you would like to bid on projects over $400,000, your best option for lower rates is to have a CPA prepare your financial statements.
To be complete and provide you with the best representation, your financial statement will include a balance sheet, income and cash flow statements, notes and disclosures, and work schedules.
When one of the surety companies in our network reviews your financial statement, they’re looking for sufficient working capital, equity, cash flow, and profit. Unfortunately, we can’t say what those should look like since they vary depending on the type of work, size of the contract, and sometimes even the geographic location of the project.
To get started working with financial statements, select a CPA specializing in the construction industry—their expertise in what bonding companies need will definitely help your business succeed here.
Next, discuss with your CPA the pros and cons of the various accounting methods available to you. The percentage of completion method is preferred by surety companies. It represents your financial condition and most accurately measures the results of work performed during the accounting period. Depending on your company’s status, the accrual method may be the better option for you. This method records revenue/income and expenses when they’re incurred, regardless of when the cash is received or expense is paid.
Finally, discuss the financial statement type your CPA will use. Here’s a breakdown of the statement types:
- Basic — The Compiled Statement is least expensive and is CPA-verified, but it’s also the least useful since it is basically the CPA compiling your numbers into their formatted document.
- Preferred — Reviewed Statements balance the CPA’s ability to understand your entire business without going beyond what the surety companies need to see.
- Detailed — An Audit Statement is the most expensive and usually reserved for well-established construction companies working very large projects.
While it’s more expensive to have a CPA prepare your financial statements, in the long run, it will mean continued growth for your business when you can compete for and win bigger projects.