Why it matters: With year-end financials now available, the way those numbers are prepared and presented can have a meaningful impact.
The big idea: Surety companies don’t just read financials, they interpret them.
1) Internal numbers vs. CPA statements
Many contractors run strong internally, then results can change once CPA adjustments hit.
- This can be due to multiple factors, but most commonly is depreciation not being applied throughout the year. This is a non-cash expense that may greatly impact the presented net-income on the year.
Why it matters: If depreciation or other true costs only appear at the CPA level, business decisions throughout the year may be made with a different viewpoint than your surety has. For a deeper discussion on depreciation (and why it’s possibly understated), give us a call.
2) Owner Draws and Distributions
Distributions are a normal part of running a business. Communicating those plans in advance simply helps surety companies put the year’s results in the proper context.
Common things that drive an “owners draw” entry:
- Cash withdrawals, for taxes, standard of living, or other needs.
- Asset transfers to related entities or other year end planning.
- Tax payments – these are necessary and understandable.
Best practice: If you’re planning distributions or asset shifts, looping in your surety team early can greatly assist your surety partners.
3) Work-in-Progress (WIP): Where the (accounting) rubber meets the (construction of a) road
WIP is the clearest accounting window into how a contractor’s projects are actually performing. There are also a few accounting nuances that can affect how surety companies interpret financial statements:
- Without a Work-in-Progress (WIP) schedule, a strong year of performance may not be fully visible.
- Pre-purchasing materials can temporarily distort a balance sheet.
- Percentage-of-completion accounting and cash-basis accounting can present very different pictures of the same year.
Key takeaway: Tax planning is important — but uncommunicated adjustments can accidentally weaken your surety profile.
A simple March checklist
Before year-end numbers are finalized:
- Reconcile internal vs. CPA financials
- Understand how depreciation impacts earnings
- Review distributions and balance sheet changes
- Walk through WIP with a surety lens, not only a tax lens
Bottom line: Strong surety programs are built by clarity, timing, and communication — especially at year-end.