What Makes a Strong Contractor Financial Statement?

What sureties look for, why it matters, and how your financials tell your story

A contractor’s financial statement is more than a tax document. For a surety, it is the lens they use to assess discipline, stability, and the contractor’s ability to take on larger work. Good numbers build trust. Sloppy numbers raise questions. The strength of your financials often dictates the size of your bonding line more than any conversation you have with your agent.

Below is a simple breakdown of what a “bond-friendly” financial statement looks like and why each component matters.

1. Ideal Balance Sheet for Bonding (Diagram-Style Breakdown)

A strong balance sheet tells the surety three things: you have liquidity. You have stability. You can absorb surprises.

Assets

Current Assets (the most important section in bonding)

• Cash

• Accounts receivable (clean, collectible)

• Costs in excess / underbillings

• Retainage receivable

• Short-term investments

• Minimal prepaid expenses (sureties discount these)

Surety lens: More current assets → stronger working capital → more bonding capacity.

Fixed Assets

• Equipment (net of depreciation)

• Vehicles

• Buildings

Surety lens: Useful for operations, but do not increase bonding capacity as much as liquid assets.

Other Assets

• Long-term deposits

• Notes receivable

• Equity in subsidiaries

Surety lens: Low value to underwriting unless highly stable or easily converted.

Liabilities

Current Liabilities

• Accounts payable

• Accrued expenses

• Payroll taxes

• Current portion of long-term debt

• Billings in excess / overbillings

Surety lens: Lower current liabilities strengthen working capital. High overbillings may signal future cost overruns unless supported by accurate WIP data.

Long-Term Liabilities

• Equipment loans

• Credit lines

• Notes payable

Surety lens: Debt is fine when manageable. High leverage reduces capacity because it drains cash flow.

Net Worth (Equity)

• Retained earnings

• Owner contributions

• Prior year profits

Surety lens: Consistent growth in equity is one of the biggest signals of a stable contractor. Negative or flat equity is a major red flag.

Balance Sheet Snapshot (Visual Summary)

               IDEAL BALANCE SHEET FOR BONDING
 ---------------------------------------------------------
 ASSETS                          | LIABILITIES
 ---------------------------------------------------------
 Cash (high)                     | AP (reasonable)
 AR (clean, aging < 90 days)     | Accrued expenses
 Underbillings (low, accurate)   | Current debt obligations
 Retainage (collectible)         | Overbillings (controlled)
 Inventory (minimal)             | Long-term debt (stable)
 ---------------------------------------------------------
 FIXED ASSETS (useful but not    | 
 big for bonding)                | NET WORTH (growing YOY)
 ---------------------------------------------------------
 RESULT: Strong Working Capital + Strong Equity = Higher
 Bonding Capacity

2. Ideal Income Statement for Bonding (Diagram-Style Breakdown)

The income statement shows whether the company can consistently produce profit and manage its overhead. Sureties do not want one great year and two bad ones. They want predictability.

Revenue

• Steady or growing revenue is ideal

• Extreme spikes raise questions: can the company support sudden growth?

Surety lens: Controlled growth > explosive growth.

Gross Profit

• Job costing accuracy is key

• Strong, consistent margins show discipline

• Profit fade in the WIP is a major red flag

Surety lens: Healthy gross profit proves the contractor can price work correctly and execute.

Overhead

• Best when stable and proportional to revenue

• Rapid overhead expansion signals future cash flow pressure

Surety lens: A lean, well-managed overhead structure improves bonding confidence.

Net Income

• Consistent net income = consistent retained earnings

• Sureties prefer controlled profitability over wild swings

Surety lens: Adds directly to equity → increases bonding capacity.

Income Statement Snapshot (Visual Summary)

                 IDEAL INCOME STATEMENT FOR BONDING
 -------------------------------------------------------------
 REVENUE           | Consistent, steady growth
 -------------------------------------------------------------
 GROSS PROFIT      | Predictable margins, minimal profit fade,
                   | strong job costing discipline
 -------------------------------------------------------------
 OVERHEAD          | Stable, proportional, controlled spending
 -------------------------------------------------------------
 NET INCOME        | Solid profit that grows retained earnings
 -------------------------------------------------------------
 RESULT: Healthy Profit History → Strong Equity → Higher Bonds

3. Why These Elements Matter to Sureties

Surety underwriting is based on one simple question:

Can this contractor finish the work they are taking on?

The financial statement answers that question through:

• Working capital (liquidity to run jobs)

• Equity strength (long-term stability)

• Debt management

• Job profitability

• Consistency year over year

• Accurate WIP reporting (ties balance sheet and income statement together)

These same elements show up across all bonding-related guidance, including the importance of clean financials, job costing accuracy, strong ratios, and WIP discipline.

A contractor’s financial statement is not just paperwork. It is the clearest indicator of performance, stability, and risk. When the balance sheet and income statement show strength, consistency, and discipline, bonding capacity grows naturally.

Sureties reward contractors who know their numbers and manage their growth with intention.