Ahead of the Curve: Maximize Your Bond Line of Credit Now

Posted by maloneybonds on February 9, 2011 under Banking, Contractors, EGCA Published Articles, Economy, Legal, Trends |

The history of our economy tells us that each and ever industry continually faces its cycles … up and down, with a few in-betweens.  Accept this fact, learn from it, and take appropriate steps now to position your firm to benefit from the coming cycle.

The construction and bonding industries trail the overall economy by 18 to 24 months.  Surety company executives fully expect to see significant contractor defaults on a nationwide basis in this coming year.  This will happen and wil result in many expensive messes for them to clean up. As those “hits” manifest themselves, the bonding companies and their reinsurers will act much like the banks in the past few years.  They will pucker up, with surety credit becoming much more constrictive and difficult to obtain.

This will all take place as our construction economy begins to improve.  Kind of like taking the spiked punch bowl away, just as the party gets going.

What can you do now to maximize your bond line of credit and fully take advantage of the pending next run?

  • Do a business plan for the coming year.  This can be as elaborate or simple as you wish.  Taking some time for an introspective look, reviewing of all aspects of your operation, along with a realistic roadmap of where you want to go and how you will get there is critical.  “FAIL TO PLAN … PLAN TO FAIL.”
  • Prepare projections of anticipated sales volume and average margins along with specific budgeted overhead line items.  If you anticipate showing red ink, detailing revised budgets along with corrective action plans will benefit you greatly.
  • Eliminate/reduce debt on bank line of credit prior to the close of your fiscal year, by any and all means.
  • Get your year-end CPA financial statement out as soon as possible.
  • Provide quarterly “in-house” financial statements that tie in with work in process and closed job schedules.  If you don’t have the capability for doing this right now, outsource it!  The benefits will far outweigh the cost.  Need help with names of people who do this?  Contact our CPA or call me.
  • Collect your receivables with all the vigor of Tony Soprano.  Unfortunately it appears as though the days of the handshake, cowboy-style contractor may be vanishing with our “New Normal” … you now have to be part CEO/MBA, attorney, engineer/architect, salesman, and cheerleader.

In many ways the past cycle spoiled us and turned many Vikings into Farmers.  Now it’s time to focus, form a plan, and execute your plan to the best of your abilities.  Once accomplished, keep an eye out for the next cycle because it WILL come.

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This article is meant to inform and is solely the product of the author.  John Maloney is a longtime EGCA member whose career has been devoted to providing surety bonding for the San Diego construction industry.  For more information, visit www.maloneybonds.com or email jmaloney@maloneybonds.com.

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