8 Tips to Making Your Business a Good Surety Risk
When your business depends on obtaining a surety bond, the greatest risk you can face is not being able to secure coverage. For many businesses, being a good risk is essential to survival .
Our surety bond professionals recommend the following actions to ensure you are a good surety risk:
- Maintain Discipline/Resist Temptation: Focus on work that you know your organization can handle. Stay within your capabilities of job size, type of work and geographic location.
- Build Your Financial Foundation: Building your firm's net worth and working capital will maximize your bonding capacity in a tough market.
- Minimize Bank Usage: Manage your bank line of credit so that you consistently borrow 50% or less of the maximum. Ideally, have bank borrowing capacity available, but do not use it regularly.
- Collect Your Money: be persistent and aggressive: Doing great work is essential, but the key to good cash flow is making sure your customers pay you on time.
- Eliminate Non-Essential Overhead: Make tough decisions now to maximize your returns in the future. You will be glad you did.
- Due Diligence is Key: Review your contracts carefully, know who you are working for, select quality and familiar subcontractors and suppliers, and make sure you know how and when you'll be paid.
- Keep it Simple: Financial statements should be free of personal or outside investments and prepared annually (at a minimum) by a qualified CPA.
- Build Your "A" Team: Surround yourself with experts: your surety broker, your accountant, your banker and your lawyer. Seek their advice regularly as if they were your outside Board of Directors.
With these items under control, you are in a strong position to obtain the coverage you need, whatever the market conditions. Take the time today to reach out to your surety broker to make sure your business is prepared for whatever conditions the market may bring.