OUR TOP 10! OUR VERY BEST TEN SUGGESTIONS TO INCREASE YOUR CONTRACT BOND LINE
In today’s unsteady economic situation and tight market, it has been increasingly harder for some service providers to get bid, construction and contract bonds. For small construction company owners and larger companies alike, it has been an environment where there are more roadblocks to acquiring deal bonds – all this at a time where more owners are requiring those bonds.
But it’s not all bad news. Even though the marketplace and economy may look dim right now, there are certain steps that you can take to ensure that you are doing all you can to make this process easier and (hopefully) cheaper.
Below are our Top 10 helpful pointers to increase your contract bond line.
1. Uncover a Certified Public Accountant That Focuses on, and is Well-Informed about, Contract and Surety Bonds.
Discovering an excellent Certified Public Accountant is THE place to begin. Your CPA should be more than just a bean counter. Instead, they have to take the time to understand your business and the proper way to disclose completed and in-process deals. These techniques of accountancy (“accountancy,” is that a word?) must be used to not only give your surety bond firm with all the needed details that they need, but also be presented in a way that offers the best financial picture of your company to the surety. This ability – to offer the necessary financial statements, in the best possible way, (and a bit of tax assistance) is critical to your success as a contractor.
Thus, an experienced CPA will present your financials in an expert way that paints the most effective picture to surety firms and job owners alike. This, combined with solid tax advice, can reduce your cash outlay significantly.
2. Get a Great Internal Financial Staff.
Many of the most successful construction businesses view their internal finance staff as a critical piece of their operation instead of just a cost to be borne by the business. A knowledgeable CFO or Controller is going to be one of your best hires. Their knowledge, along with a good staff, makes your bid process, collection process and compliance paperwork efficient and appropriate. This will speed up collections and stretch out your payments (the goal: reduce A/R and increase A/P).
There are a variety of things that a knowledgeable finance staff can do for your business. A good, efficient collection process starts with getting the bill out quickly. Even more, your staff should be able to detail your expenditures so that you can operationally determine where to best spend your money (many contractors can increase sales/marketing by 2-4% this way; wouldn’t you LOVE an additional 5-10 good sales per year?).
Finally, your staff can work with you and your CPA to determine the best way to present your financials. This helps keep your bank costs, insurance costs and surety bond costs as low as possible.
3. Know the Game (that is, know your legal rights and responsibilities).
Great businesses understand the rules of the game and play well within those rules. Not only that, it’s crucial to know your legal rights and the legal rights of others involved with a construction contract. This includes the general contractor, all subcontractors, vendors and the owner. As a contractor, you need to be aware of lien and stop-notice laws (they differ from state to state, and they are revised nearly every year). If you lose sight of those rights, you could miss something and that could cost you dearly in time, energy and lost revenue. The general contractor is probably going to be responsible for paying all salaries on the site, even if they are technically supposed to be paid by the subcontractor. Many state agencies will apply minimum or prevailing salaries – which can be much more than the bargained rate through the subcontractor (talk about a budget buster).
It is also vital to know any pending legislation and have a top-notch lawyer who deals with construction matters on a regular basis to keep you informed.
Finally, you need to know the ins and outs of any payment bonds on your projects. It’s not enough to have a payment bond. It’s YOUR job to know the details of that bond. That is, who gets paid, when they get paid and how do they get paid. These details are critical in your everyday cash flow. If you know the details up front, it can save you a ton of time in repayment, fees, etc. Lots of contractors regret “winning” in court several years after the job was completed. The legal fees and loss of cash flow was the real pain in the project.
4. Work with a Financial institution (i.e, a Bank) that understands Construction Companies.
As a contractor, your cash flow can be quite different than other companies. It’s important that your bank loan officer and relationship board understand the building market and the different financing risks that are connected with general contractors and subcontractors. It’s a great idea for you explain to the decision-makers at the bank these intricacies in financing a contractor. Better yet, it’s good to develop a relationship with your bank. Account managers come and go, so it is essential that you maintain consistent contact with your bank.
Establish a Presence on the Web.
We used to tell people to set up a web site. Guess what? Not anymore. Now we tell them to get a web site and establish a strong social media presence. You would be amazed at how few contractors have a web site or understand how crucial it is. Even more, many contractors do not understand why they need to have a presence on the web, including most social media outlets (think LinkedIn, Facebook, Twitter, etc.).
Owners, developers, and clients expect to be able to learn about a possible colleague with a click of a button. Nowadays, a construction business that does not have a web present is considered out of touch with the current demands of the marketplace. Companies that do not promote themselves online have a difficult time convincing others that they have the same capabilities as other service providers who have taken the time to establish an informative web presence.
Finally a bonus to your web presence is that prospective employees consider it crucial when choosing an employer. Your web presence can also potentially end up being a center of communication for your staff/employees, merchants, clients, and subs.
6. Its your Money – so Collect it.
A contractor MUST pay extremely close attention to their open receivables. The most successful companies make really clear exactly what the payment timetable will be before beginning any job. Then, they consistently apply their collection policies and guidelines. One tip is to pre-qualify clients and validate their readily available funding to make sure what is open to cover the amount of the contract. This is so vital because in today’s building economy, after acquiring a job, the most difficult component is getting paid for it.
7. Get to know your Surety Bond Underwriter.
This can be the single greatest thing that you can do to get a great bond rate. Remember, your bond underwriter is a person too. Like everyone else, they appreciate meeting who it is that they are trying to underwrite. Make it about more than your numbers. Give them a face to go with the name. Give them your story – why you’re in business, why you’re passionate about what you do and why you’re a good risk.
Try and get a relationship both with your local branch underwriter as well as the home office underwriter. Although the branch expert can be a strong proponent for you, the real decision maker is at the surety firm’s home office.
8. Talk, Email and Text.
Hey, you spend a bunch each month on specialists to provide you the services that you need. Your CPA, lawyer, insurance broker, bond broker, etc., all provide specialized services that you need. All of these providers need to be kept informed in what you’re doing.
That way, these people can tailor their advice to best meet the needs of your business. Instead of them trying to guess at what you’re doing, they’ll know and devise a plan to maximize your business results. Phone calls are great, but regular texts or emails are also welcome. Anything that lets them know what’s going on is great.
9. Manage your Reputation.
You’ve spent your entire life making your reputation, right? So don’t let others manage that reputation for you. There are three parts to this: 1) who you know; 2) what they say about you; and 3) what you say about you.
1) Who you know. Your relationships define you. Those subcontractors, vendors, engineers, architects, are all important as their work on a job will affect you. Try and work with the best people possible. They will, in many ways, define who you are. Also, don’t forget about your CPA, lawyer, etc. They are also influencers in the community.
2) What they say about you. Don’t let a few bad apples define who you are. Be proactive in heading off any disputes (you’d be surprised how many people put their head in the sand until it’s too late). Deal with your issues head on. It’s hard, but it’s worth it. Finally, why don’t you ask everyone what they say about you? You’ll appreciate the feedback. More importantly, why have you asked them for a referral? It can’t hurt to ask (if they do say good things about you).
3) What you say about you. I’m as bad about this as anyone. I grew up in a home where it was not appropriate to brag about yourself. Ok, so don’t do that. But it’s ok to go ahead and let others know what you’re doing. They can judge for themselves how great you are. Use your social media accounts and mailing lists.
10. The Surety Broker.
And finally among the most important tricks to a successful surety program is to find a great surety broker. What a good surety bond broker does is match you with the proper surety provider. In today’s difficult surety market, a good, educated broker understands all of the different areas of your operations and how your operations (and financial statements) affect your surety credit. A good broker maintains the relationships with the surety so that they can understand all of the different aspects of the formulas that each surety favors. The number of active sureties in the market continues to decrease, so there are fewer choices. So, when bond line capability becomes an obstacle, it is important to have all possible choices available. A knowledgeable surety broker needs to be able to work with your CPA and internal finance staff, know how the game is played, have good relationships with banks (and be able to work with your bank), and can work with you on how to best position your story – so that the surety can provide you with the best possible bond line.