It is that time of year again. Your financials are being received, and you surety underwriter will want to meet with you to talk about your 2022 results. Here are some topics you should be prepared to discuss at your upcoming annual meeting.
Surety companies often make judgement calls based on how prepared they believe contractors are for potential economic downturns. Companies with the same balance sheet today could be given significantly different programs if one company is managing potential risk better than the other. Supply chain, material pricing, labor, and ownership changes have been topics most sureties discussed in 2022, and will continue to discuss in 2023.
With respect to supply chain, material pricing, and labor, your surety partner will likely watch to ensure you have your eye on these issues and have put some processes in place to address these issues as best you can. Be prepared to discuss if you have considered the following:
- Ordering supplies earlier and/or holding on to higher inventory of more frequently used items
- Refusing to lock in bids for a long time periods
- Negotiating price escalations into your contracts
- Adding additional contingency into your bids to alleviate the effects of price changes and potential overtime charges
- Programs and incentives being utilized to attract and retain employees
- Training/mentoring programs designed to bridge the gap between younger employees and the more experienced personnel that may be retiring in the near future
Ownership transitions will be scrutinized more by your surety partners. A few items that will be requested and assessed are as follows:
- Experience of the new owner(s) and personal financial statements
- Financing of the purchase and what that will do to your balance sheet
- Terms of financing
- Pro-forma financial statements
- Employment contracts in place for key people in the organization
- Indemnity package
- Any changes in business plan
If you would like more information on anything mentioned above, please contact Crystal Bennis, Surety Bond Executive at McConkey, for further information. Our services include surety program review, contract review, prequalification process implementation.
