Financial Statements Explained

As a Contractor or other entity needing a Surety Bond Program, you’re likely being asked to provide Financial Statements. This may be confusing, since you were able to easily buy $1,000,000 of Insurance without any Financial Statements, however Surety and Insurance are not the same thing. Financials show the strength and credit-worthiness of the Principal, and are used by the Surety to determine the limits of the Surety Program.

Company Financial Statements are required of the principal company, all affiliated companies, and companies with common ownership. They should include:

• Balance sheet
• Income statement (also called a Profit & Loss or P&L).
• Work in Progress Report
• Aging’s of Accounts Receivable & Accounts Payable
• All the above must be dated as of the last day of a period (month, quarter, or year)
• Verification of cash with bank statements (not screenshots).
• Must be closed and fully reconciled. No changes should be made to the statement after it is submitted to the surety
• Presented on the Accrual Basis of Accounting or Percentage of Completion Basis of Accounting

The initial submission to the surety should include three years of Company Financial Statements. If the last year-end is over six months, an interim statement should also be provided. Once a Surety Program is active, financial statements should be updated every six months, depending on the activity of the account (annual for less active accounts or quarterly or more for more active accounts)

Personal Financial Statements are required for all owners of the principal company and should include spousal information. They should contain all the personal assets and liabilities as of a specified date. The personal financial statement should not include company assets or liabilities. However, the personal financial statement can include the equity asset of the companies the principal owns. A personal financial statement should be included in the original submission to the surety and updated (at least) annually to maintain surety credit.

To apply for a bond, visit our home page. For more information and answers to any questions, always feel free to reach out to us, or refer to our prior blogs. To follow our company, visit our socials.

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