Working Capital: It is a key element for contractors when they apply for Bid and Performance Bonds. Too low, and the bond or entire account may be rejected by the bonding company. Primarily, this number is calculated once a year on the fiscal year-end financial statement. If the Working Capital (WC) comes out low, you’re STUCK with it all year… or are you? Are there ways to “poof!” magically find more working capital on an existing financial statement? Why yes! 
Here are three ways contractors and their insurance / bonding agents may overcome a WC deficiency:
- Stockholder loan: The owner can Subordinate an existing loan to the surety. This means the owner / creditor will not demand that the company / debtor repay funds the company has borrowed. The Subordination removes the stockholder loan from current liabilities, thereby increasing WC.
- Underbillings: Accrual Method financial statements do not include the current asset called Costs and Estimated Earnings in Excess of Billings, or for short: Underbillings. If a net Underbilling Asset is calculated, it will directly increase the WC analysis.
- Bank line of credit: Many analysts will add available bank credit to the WC analysis.
Note: All three of these ideas can be applied to the recent fiscal year-end statement. You don’t have to wait for a new statement to use them!
Bonus Poof!
How to immediately increase the Net Worth (NW) analysis: Fixed assets, such as heavy equipment, are depreciated each year resulting in their declining value on the Balance Sheet. The carrying value of the asset may eventually be less than the actual “street value” of the machine. This lost net worth can be re-captured by finding the current appraisal value. For big and old companies, this can give a major boost to the NW calculation – and therefore the bonding.
We hope you find these four tips helpful. They can literally improve the analysis of an existing financial statement.
Do ALL bonding companies want you to know these secrets? Hmmmm… We do! FIA is a bonding company (carrier) that has served contractors and their agents since 1979. We are flexible and creative surety bond experts. Call us for Bid and Performance Bonds. Call us for Site and Subdivision Bonds – our specialty!
Steve Golia, Marketing Mgr. 856-304-7348
FIA Surety / First Indemnity of America Insurance Company, Morris Plains, NJ
Secrets of Bonding 