How to build your bond program

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Building a bond program is not just about being able to go after bigger jobs. A partnership with a bonding company you trust provides valuable information on the jobs you’re bidding and is an important piece of your strategic growth plan. This week, Stephen shares some useful advice for building your bond program.

Topics we cover in this episode include:

  • Partnering with a great bonding agent is key
  • Be proactive and honest with your bonding agent
  • Listen to your bonding agent’s perspective on potential jobs
  • Year-end planning for your bond program
  • Start getting financial statements before you need bonds
  • Newer contractors can get bonds based on personal credit

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Rob Williams, Profit Strategist |
Wade Carpenter, CPA, CGMA |
Stephen Brown, Bonding Expert |


[00:00:00] Rob Williams: Welcome to the Contractor Success Forum. Today we’re here to discuss building your bond program.

And with us we have Stephen Brown, with McDaniel Whitley Bonding and Insurance Agency. And we have Wade Carpenter with Carpenter and Company, CPAs. 

And we are the Contractor Success Forum, here to discuss how to run a more profitable, successful construction business.

Wow. Building our bond program. I was lucky enough to have an amazing bonding agent when I started my bonding business. Who was it, that was that Stephen Brown guy, wasn’t it?

[00:00:44] Stephen Brown: Thanks Rob.

[00:00:45] Rob Williams: Yeah. You’re–

[00:00:46] Stephen Brown: –that.

[00:00:47] Rob Williams: Yeah. Wade, you see that? What are your comments, because we have Stephen here with us, you know, as an accountant and all these things.

How important it is it for your contractors to build that bonding program intentionally. 

Having a great bonding agent is key

[00:00:58] Wade Carpenter: Building the program there’s several things to doing that. But having a great agent is key. One that will go to bat for you, one that will give you advice. And there’s a big difference in somebody that does that and tries to help build you up and knows the different markets and what they can get.

So that’s why I’m really excited. I love working with Stephen and I think he’s got years of experience and it’s it’s one of those things that I really appreciate in trying to help my contractors move forward with bonds.

[00:01:28] Rob Williams: Yeah. One more thing. Stephen talks– he doesn’t like it when I toot his horn here. But you know, there are different agents. There are order takers that just, you go to them and they go, Oh yeah, I’m a bonding agent. I think I, yeah, that’s listed eighth on my thing of what I do. And they just take the order and they just sort of hand them over and they shuffle that information.

They take it from one pocket and move it to the other, and there’s no input or creativity or education and learning all about it and what goes into this is crucial if you need a bond, if you need more bond credit, if the bonds are important to you, it’s important to have an agent that it’s important to him.

[00:02:13] Wade Carpenter: Yep.

[00:02:14] Stephen Brown: Wow. Thanks guys. Well, we can just end it right now. Appreciate you. The, I guess the point of building your bond program to me as a bond agent is, that’s my job, that’s all I do. And I only get paid when you are low bidder on a job and need a performance and payment bond. It’s always in my best interest for you to succeed, but I certainly care about your success and I want you to succeed.

Be a partner with your bond agent

[00:02:41] Stephen Brown: Being your play caller for your bond program is not just up to your bond agent. The more you know about it, the more you need to be a partner with your bond agent and discuss the things that you need to discuss.

For example, this morning before the podcast, early, I got an email about a large project coming up for bid that is really out of this particular contractor’s specialty, but they hired some guys, that this is all they do. And there’s some elements to this particular job that really fit. So we have to talk about it.

We have to break it down, and we have to decide how to approach the bonding company about it to get it approved. That’s my job. But your job as a contractor is to help me help the bonding company understand what you do and what you want to accomplish. And there’s some bond agents, like you said, Rob, that are just order takers.

There’s other bond agents that really want to control every aspect of your bonding relationship and tell you not to worry about it. It’s not something you need to know about. But the best bonded construction programs are where the contractor is actively involved. 

And by actively involved, I mean, hey, I want you to come out bond underwriter, bond agent. I want you guys to come out in this construction project. I wanna show you what we’re doing. It’s exciting. I wanna share some successes. 

I’m worried about something. Can we talk about it? Here is my backlog gross profit, and here are my cash flow projections. Can we push this program a little bit because I believe we have the infrastructure in place, the people in place, the expertise in place to really grow. And I think this is the year we’re gonna push it. 

These are all the things that you need to talk to, and nobody can communicate that better than you. And the more you share with your bond agent about what you’re doing and what you wanna do, the better job they can do for you.

Be proactive and honest with your bonding agent

[00:04:45] Wade Carpenter: Right. You actually just kinda reminded me of a situation I’m dealing with that, too often I see a contractor that they don’t have that great relationship with the agent, so they’re hesitant to tell somebody like, hey, something may be going wrong or whatever. 

But I had a, another situation where somebody was getting way beyond their previous capability as far as what they had been able to bond before. And we needed to kinda reach out and talk to the bond agent. It was like, how can we make this work? Because they had a big commercial general contractor that really wanted them on the job, and we had to get a little creative.

And working with the bond agent is the key to getting that done.

[00:05:29] Stephen Brown: Sure.

[00:05:29] Wade Carpenter: Not waiting till the last minute and saying, I already got the job. Get me a bond now.

[00:05:34] Stephen Brown: Yeah. Hey, luckily this job we were talking about comes up a month from now, but, so I really appreciate it. It was just a heads up. This is what we’re thinking about doing. Let’s talk about it. And that’s everything. And the relationship. Remember, bonding is just relationship. And when you talk about stuff like bank lines of credit and retainage and bonding and workers comp and insurance, they’re all kinda have negative connotations where change order is such a happy thing to talk about.

Listen to your bonding agent’s perspective on potential jobs

[00:06:09] Stephen Brown: But bonding really is something that I can tell you from firsthand, knowledge can really help you. You’ve got extra set of eyes. They’re not intimately involved with you and what you’re doing day in and day out. They can kind of see the forest through the trees a little bit. Not to mention that you have experts that all they do is look at different contractors and different projects.

That’s their job. So if a underwriter says, I don’t feel good about this job, and your bond agent agrees and you don’t understand it, then you have an option. You should get another bond agent, or you could say, Well, I really trust my team. Let’s maybe pass on this job. I see their points, and even though I don’t totally agree, they’re a member of our team, so we’re gonna take a pass on that. So there’s just a lot to this relationship. It’s constantly moving and it’s all about communication.

[00:07:13] Wade Carpenter: I mean, you know, I’ve seen situations exactly like that and there are situations where a contractor, they may want this huge job. Exactly what they’re telling them. If they can’t bond it, there’s probably a reason that, maybe you can’t support that. I’ve seen, what they thought was a good job take a great contractor down.

So I think that’s great advice. 

Year-end planning for your bond program

[00:07:36] Wade Carpenter: We’re recording this in early November and it’s the time of year where I’m starting to do the tax planning and we call it tax and bond planning because this is the time to think about dressing up your financial statement at the end of the year. Can you talk about that a little bit, Stephen?

[00:07:52] Stephen Brown: Yeah. It’s something that we’re talking to all our clients about right now. Every single one of them. Are you meeting with your CPA? And are you getting this information together? It’s such a huge part of the upcoming year for bonding. It sets the tone and just the level of relaxation that comes from getting a financial statement earlier than later to a bond underwriter is huge.

You have a reputation of getting late financial statements. It tells the bonding company two things. The first thing is that you’re, you’ve lost money and you don’t want them to know, or the second thing is, I’m just not organized. I don’t have time to mess with this. Either way you’re pulling the plug of what’s feeding that bond program.

[00:08:41] Rob Williams: I think one of the important parts of this is how you look at the bonding program and what you’re doing when we’re saying building that bond program. I believe it should be incorporated as part of your strategic planning process because this is not extra work that you do for your bonding program.

Use this information as feedback and part of your strategic team to build your strategic plan and your thinking. It’s not an obligation to have to do this. Look at it is almost like free consulting or it may not be free. But as it comes from that, the feedback and the input that you get from the bonding program, I mean, who else but the people that have to cover people’s butts when these jobs don’t go well to advise you on your company?

Yes, they are looking out for themselves, but by them looking out for themselves, they’re partnering with you on these jobs, and that’s valuable information that’s very hard to get. So take this information, look at the this as your strategic plan when you’re building this bonding program to look good for the bonding company.

You’re looking good for your owner, which is probably you that we’re talking about in our podcast. This is to benefit you not a cost and an extra time that takes away. This should be built in as part of your progress in your company to build your company. Building your bond program is building your business program, your business plan.

[00:10:17] Stephen Brown: Wow. That’s so true. That’s true and building your bond program is not just about the size jobs that you’re getting approved, or your capacity for bonding. That you know, that’s an element of it, but that comes when you’ve done everything else right. So we’ve talked before about if you’re a small contractor, and you can get credit scoring bonds up to a million dollars.

So that’s pretty darn close to just calling in an order for something, like we were talking about earlier. And then you need a bigger bond program. What if you’ve pushed up to that million dollars, but the job for you to make the profit that you’re gonna make, and you can get this job and you can make a huge profit on it, but the job amount is 1,400,000. What are you gonna do then? 

Well, first of all is just put a lot of heat on your bond agent. You gotta figure something out. And they may have already told you over and over again what they need to get the job done, but you just aren’t listening. Well, that’s building your bond program.

[00:11:22] Rob Williams: Yep. I do think about that. A lot of the guys look at it and they only remember the negative part of when the bonding company may have disagreed or maybe they didn’t see the light. Well, maybe they don’t see the light, but that’s something to point out. You as the owner better be thinking about that.

Cause I think more times than not, it’s something the owner just hadn’t thought about. It’s ooh, you just saved my butt. I shouldn’t take that job. That job may have been what’s gonna kill me. I heard Vern Harnish say this the other day. I was in a meeting with him up, up in Pennsylvania, and my dad used to say, the best deal that you ever made is the deal that you didn’t do. And that may be what saves you. And the bonding company may help you point that out. I know we’re always wanting the positive thing, but we’re there to sell it, and maybe you have to sell them on something, but that’s part of it.

And the analytical part of yourself, they’re not just making this up. They want your bond. They make money on the bond. If they’re pointing this out, there’s a reason that they didn’t give you the bond.

[00:12:24] Stephen Brown: Right. I told my partners we need to change the name of this agency to change order insurance and bonding. It just makes everybody happy. But everything else that we talked about that is negative is positive. It’s just a tool that you use. To get those change orders, to get those projects that you know are gonna be a little bit complicated.

Maybe the owner and the architect engineer don’t see what you see that have to be done that you can use to your advantage to get that change order. But anyway, that’s the main points I wanted to make.

Start working on financial satements before you need bonds

[00:12:58] Wade Carpenter: Yeah. One thing I wanted to point out, which I think I’ve made this analogy a few weeks ago when we did the podcast on financial statements. But building a bond program is a lot like being a teenager and trying to get credit for the first time.

It really is. And a lot of people don’t think about, they get mad at the man and go jump off and become their own boss and they start their own company and, they think, well today I don’t need a bond. But some day down the road, I might like to be able to get a bond. But they wait until they get this contract that they really want and then they say, I need this now.

Well think about that when you start off. Think about doing some formal financial statements even in year one, so that you can have that history. And I think Stephen will tell you it’s generally about the same thing. Three years of financial statements is typically one of those things.

Just like a–

[00:13:50] Stephen Brown: Three years.

[00:13:50] Wade Carpenter: –get credit, Is that not true?

[00:13:52] Stephen Brown: Three years.

Newer contractors can get bonded based on personal credit

[00:13:53] Rob Williams: Yeah. One good point that I didn’t know, Stephen, you mentioned it, but I had heard that Wade about that three years and then the certain amount of cash that you want. But if you want to be a bonded contractor, don’t forget what Stephen just mentioned. You can get a bond based on your personal credit, right? So.

[00:14:12] Stephen Brown: That’s right.

[00:14:13] Rob Williams: Is it possible if somebody’s a new contractor to get that? If they–

[00:14:17] Stephen Brown: Well, almost all of them are going up to half a million dollars just based on your personal credit. They have programs that do that, but the rates are higher. Does that make sense? And then when you go from 500 to 750, they want a little bit more information. Then a million, they at least want an in-house financial statement and a good personal financial statement.

So, sometimes, we’re the ones left scrambling to help put something together to get that approved and it should be you and your CPA, but nevertheless whatever it takes to get the job done.

[00:14:53] Rob Williams: I think that’s one of the things that kept me for years not going through the bonding process, is I heard all the things that you had to get from my big successful contractor friends. So they were talking about that and I didn’t realize that there’s another way in the door, because it seemed to me like it was the only way to get in the bonding program is to partner with somebody that’s already bonded or inherit it or something in there that there was just not a way to start in there and there is a roadmap and there you go with another way to talk to a bonding agent that knows this stuff.

[00:15:26] Stephen Brown: I really appreciate calls from folks that want to talk about what their needs are and what they wanna accomplish. That way they’re bringing me in as a team member and that’s huge to me and it’s huge to the companies you want to do business with.

[00:15:42] Rob Williams: Yeah. So if you’re a concrete contractor, or a framer or a plumber, or you know, anything else, there is a way to get into this commercial contracting bonded world. I believe we felt like those were just two different worlds out there when I was in it and it’s not true. Just find a guy like Stephen and get started!

[00:16:01] Stephen Brown: It’s just, well, it’s like an electrical contractor doing plumbing. They might can do it, but it might be ugly.

[00:16:06] Rob Williams: Yeah.

[00:16:07] Stephen Brown: A dangerous, who knows. But this is all I do every day, all day long. And it’s just, you know what I do.

[00:16:14] Rob Williams: You made it easy for me. Honestly, I was shocked when you told them, you’re like, well, yeah, I can get you a bond. We can do this. I was like, really? I thought I had to be this giant GC contractor stuffer, one of these companies that are just huge all over the place. And it was really easy for me.

[00:16:32] Stephen Brown: Well, you paid your premium on time and we never had a bond claim and I really appreciate that Rob.

[00:16:38] Rob Williams: That’s true. All right.

[00:16:40] Wade Carpenter: Well, one thing I did wanna point out too, which, I guess a lot of people don’t think about, but a million dollar construction contract is not that big anymore.

[00:16:48] Stephen Brown: No.

[00:16:49] Wade Carpenter: And so you know exactly what Stephen was saying. You can do this based on credit up to a million dollars maybe. But again, the ones that people are chasing, they want these bigger ones.

If you really want them and you think you may ever need them, explore that today, even if it’s not on your radar. Right. Don’t wait until, hey, I got this job I really want, and go running to Stephen at the last minute and saying work miracles, because it’s gonna be a lot easier if you can start building into it.

[00:17:20] Stephen Brown: Sure. And I can say with all honesty that bonding can be fun. Have you seen those Liberty Mutual commercials where they’re jumping in the pool with their laptops, going, making insurance fun for young people? I think that’s a crazy topic. But yeah it can be fun. It can be relaxing, and your bond agent, I can say that a lot of my very best friends are my contractor buddies.

[00:17:42] Wade Carpenter: It’s not as fun as internal revenue code reading, but that’s.

[00:17:46] Stephen Brown: Sweet!

[00:17:48] Rob Williams: All right. And not as fun as the Contractor Success Forum, because here on the Contractor Success Forum, we have fun building your contractor business.

[00:17:59] Stephen Brown: Yeah, we do. That’s kind of an angry ending. But I liked it.

[00:18:03] Rob Williams: Hey, man I’m passionate. The anger, just thrill of getting these contractors driving their businesses into profitability.

[00:18:12] Stephen Brown: Well, now you are passionate about it. I think we all are, but I hope y’all enjoyed this topic because it just, it’s timeless.

[00:18:20] Rob Williams: All right, well thank you. Stephen Brown with McDaniel-Whitley Bonding and insurance agency. And Wade Carpenter, Carpenter and Company, CPAs. And I’m Rob Williams with IronGate Entrepreneurial Support Systems. We will see you on the next Contractor Success Forum.

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