Construction

Financial Statements: What do the Banks/Bonding Companies Really Want to See?

Ryan Cook, Audit & Consulting Shareholder

December 7, 2015

Financial Statements: What do the Banks/Bonding Companies Really Want to See?

Construction business owners regularly have to report to financial institutions. Whether they are requesting a bank to increase their line of credit, or asking for a loan, or they may need to get bonded or insured for an upcoming project, it’s important that the owners have all of their financial statements in order before they approach the bank or bonding agent. Fortunately, there are rules and guidelines that owners can follow to ensure they are preparing the right types of statements and doing so correctly. Called GAAP (Generally Accepted Accounting Principles), these rules are set by the FASB and promote transparency in accounting.

GAAP requires the following 5 statements to be included in a complete set of financial statements:

Balance Sheet.
Income statement.
Statement of stockholders equity.
Statement of cash flow.
Footnotes. Footnotes break down the balance sheets and provide more detail on each account.

Key Footnotes for construction companies should include:

1. Contract Receivables

Contract Receivables show how much money a company has billed but has not collected yet. They should be separated out into categories showing the aging of the receivables (0-30 days outstanding, 30-60 days outstanding, 60-90 days outstanding, etc.). Retainage on contracts should also be in a separate category. Banks and bonding agents may feel it is a red flag if a company has an excess of contract receivables that are over 90 days overdue excluding retainage.

2. Contracts in progress

This gives a snapshot of the company’s year-long activity and should include completed contracts, jobs in progress and indirect costs which ultimately reconciles revenue earned and costs of construction to the income statement.

3. Debt footnote

This describes the company’s financing arrangements, such as line of credit (how much are they extended?) and long-term debt and terms (when will it be repaid?). This helps the users of the financial statements determine how much cash flow is needed to service debt and also if there is any large balloon payments coming due.

4. Backlog

The backlog shows how many contracts have been signed, but on which the work has not been done. Banks/Bonding companies like to see a healthy backlog as this provides assurance there is more work in the pipeline to pay off future debt obligations.

What do I need to show the bank?

A construction company may need to present financial statements to banks when they are requesting an increase in their line of credit or are applying for a loan. They also need to make sure they have all their financials in order as they go into year-end tax planning. Banks tend to focus heavily on balance sheet, which tells the story of how strong the company is financially. Additionally, banks like to see footnotes included, which tell a more in-depth story of the company’s financial stability.

What do I need to show bonding companies?

While bonding companies will also be looking at the above financial statements and footnotes, they will also be focused on Supplemental Schedules. These include:

1. Summary of earnings

This is a snapshot of completed contracts, jobs in progress and indirect costs. This summary of earnings should paint a picture of the margin the contractors are making and should also give an accurate picture of how well jobs are being estimated. For example, if a contractor is routinely estimating to make 30% on projects and most completed projects come in at 20%, the reason for the profit fade may need to be addressed. It could indicate that projects are being aggressively estimated, that project managers are fading on the job or that indirect costs are not being allocated correctly.

2. Schedule of contracts in progress

This gives the details on the margins a company is expected to make, how far along in the process jobs are and billing to date. Bonding companies are looking to make sure contractors are up-to-date on billing jobs and are again making sure estimated margins and actual margins are consistent. This detail on a job by job basis is an important feature to bonding agents. Here at Lutz, we know what the banks, bonding and insurance agents are looking for and can help you prepare financials that follow GAAP standards and present your company in the best possible light. Preparing these financial statements can also help us get an accurate picture of the health of your construction company and identify red flags before they become emergencies. If you have questions about preparing GAAP financial statements or other accounting questions, please feel free to call Ryan Cook at 402.827.2085.

Command, Woo, Competition, Self-Assurance, Ideation

Ryan Cook

Audit & Consulting Shareholder

Ryan Cook, Audit & Consulting Shareholder, began his career at Lutz in 2006 as an intern. His professional trajectory exemplifies the firm's commitment to developing talent from within. Named one of Midlands Business Journal's 40 Under 40 in 2017 and becoming a shareholder at age 30, Ryan's leadership potential was recognized early. He currently serves on the board of directors and leadership committee and will assume the role of Managing Shareholder in 2025, marking the next chapter in Lutz's leadership.

Leveraging his expertise in audit and valuation services, Ryan serves clients across the construction, real estate, and transportation industries. He provides comprehensive consulting solutions while managing strategic firm initiatives. Ryan values building lasting relationships with clients while fostering the next generation of talent, ensuring both clients and employees achieve their full potential.

At Lutz, Ryan embodies the firm's dedication to embracing change through his dynamic and visionary leadership. His entrepreneurial spirit and ability to connect with stakeholders of all generations position the firm for continued growth and innovation. As he prepares to become Managing Shareholder, Ryan remains focused on advancing Lutz's strategic vision.

Ryan lives in Elkhorn, NE, with his wife Katie and their children Keegan, Collins, and Griffin. Outside the office, he can be found watching his kids' activities and playing golf.

Services

Industries

News & Insights

Estate Planning Guide

Services

Resources

How To Avoid Being Negligent When It Comes To Risk

Business Insights

Comparing Business Valuation Methods: Which is Right for You?

Services

Resources

NEWS & INSIGHTS

Financial Market Updates

Services

Resources

Factors to Consider When Selling a C Corporation

Business Insights

5 Key Items to Review During Financial Due Diligence

Services

Candidate Resources

News & Insights

Benefits of Outsourcing Your Human Resources Function

Services

Resources

Introducing Data Analytics into Your Business

Business Insights

Pella Client Testimonial

Business Insights

Webinars & Events

Financial Market

Resources

Business Insights

About

Financial Statements: What do the Banks/Bonding Companies Really Want to See?

GAAP requires the following 5 statements to be included in a complete set of financial statements:

Key Footnotes for construction companies should include:

1. Contract Receivables

2. Contracts in progress

3. Debt footnote

4. Backlog

What do I need to show the bank?

What do I need to show bonding companies?

1. Summary of earnings

2. Schedule of contracts in progress

Ryan Cook

Recent News & Insights

Electing Out of the Complex Variable Interest Entity (VIE) Guidance

What Your Business Needs To Know About Sales Tax

What are the Pros and Cons of Filing a Business Tax Extension?

How to Increase the Value of Your Business

Let’s get you where you want to go.