Secrets of Bonding #14: Financial Statements – Timing

When it comes to financial statements, no news is bad news.  Let’s talk about the timely delivery of annual financial statements.

Many construction companies have a 12/31 fiscal year-end (FYE).  This means their most important Financial Statement (FS) are based on this date each year.

By the end of March, bond underwriters and bankers are expecting to see the financial statements for the FYE.  90 days after the date is normally the time allowed for this info.  Beginning on April 1st (or 90 after the FYE, whenever that is), the contractor enters the tap dancing zone.

Q. “When will we see the 12/31 FS?”

A. “There is a slight delay due to…” (choose one)

  • My CPA was ill and got a late start
  • Our software crashed and it delayed the accounting process
  • The dog ate it

While it’s true there are outside or uncontrollable factors, sometimes contractors intentionally hold back the info.  One example we’re seen involves loan covenants.  The company may have fallen out of compliance with their lender and now is attempting to obtain a waiver from the bank.  Having such a waiver will enable the CPA to comment that the FYE non-compliance has been resolved.  That sounds a lot better!

Here is the downside: We have seen construction clients hold back the FS for 10 months in some cases.  Obviously the delay itself can become an even bigger problem.  At some point underwriters say to themselves “If the FS was good, the contractor would want us to see it…”

So the point is that timely financial reporting is beneficial to bonds and banking.  It shows that the company is well organized and professional.  There is no hiding from the financials.  If there are issues, prepare an intelligent explanation,  describe the corrective actions management is taking and provide projections for the current year.

Producing financial info on time is as important as the numbers themselves!

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision, Bid and Performance Bonds since 1979 – we’re good at it!  Call us with your next one.

Steve Golia, Marketing Mgr.: 856-304-7348

First Indemnity of America Ins. Co.

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