In a tightening construction market, the importance of financial planning and strategic equity retention cannot be overstated. Bonding capacity serves as a barometer for a construction company’s financial health and operational capability.  Financial resources are becoming increasingly constrained due to high interest rates, increased material costs, and a tight labor market.  Following a strategic financial plan is critical to maintaining a strong equity and working capital position to secure the levels of bonding capacity your business requires.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act’s Paycheck Protection Program (PPP) and the Employee Retention Credit (ERC) served as financial lifelines for many companies during the pandemic. These programs provided much-needed capital that helped companies meet operational costs and, critically, maintain their financial ratios. This short-term assistance helped not just in immediate cash flow needs but also supported companies in preserving their bonding capacities—a critical aspect in a sector where these bonds often serve as a precondition for business.

With the PPP and ERC programs completed, there are no additional planned programs to bolster financials statements.  Companies will have to resume their own budgeting and financial planning measures.  A comprehensive financial plan encompasses not only working capital management but also includes planning for equipment acquisition, labor costs, and other operational expenses. This financial resilience is especially important when fulfilling the stringent requirements for obtaining bonds. Companies that effectively manage their equity are in a better position to meet or exceed the financial ratios that are key in a bonding company’s assessment of risk.

In light of the increasingly challenging financial landscape, now is the time to actively engage in shaping your company’s financial future. Reach out to your core advisors—your surety agent, CPA, and banking representative—and set the table for a comprehensive discussion on your company’s strategic planning process and goals. These are the experts who understand the unique challenges and opportunities within the construction industry, and their insights could be invaluable. By having these focused conversations now, you can proactively address your financial planning and equity retention strategies, thereby safeguarding and potentially expanding your bonding capacity. Don’t wait for market conditions to dictate your moves; take charge and ensure your business is prepared for whatever comes next.