How to recession-proof your bonding program

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A recession may be coming – have you thought about how your bonding program may be affected? This week, Stephen, Wade, and Rob are sharing the steps you can take now to keep your bonding capacity where it needs to be, even if money gets a bit tight.

Topics we cover in this episode include:

  • Lock down your financial board of directors
  • Keep a close eye on your cash flow
  • Don’t cut back on the wrong expenses
  • Push your bonding company on slightly bigger jobs
  • Get good systems and processes in place
  • Be ready to provide up-to-date financial statements

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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 discussing how to recession proof your bonding program. Man, it’s good timing for that. I guess we may be in recession times.

And who is here to tell us about this? We have Stephen brown with McDaniel Whitley bonding an insurance agency. And we have Wade Carpenter with Carpenter and Company CPAs. And Rob Williams with IronGate Entrepreneurial Support Systems.

So recession-proof your bonding program. How in the world do we do that?

[00:00:41] Wade Carpenter: I definitely want to hear. Stephen, what you got for us today?

[00:00:45] Stephen Brown: Well, one thing, you need to make sure that your team of professionals is clearly in place. 

[00:00:51] Rob Williams: Yep.

Well, well, Stephen, before you go into that, I guess my first question is, what are we protecting against? Kind of the why, when we’re recession-proofing it.

[00:01:01] Stephen Brown: Well, remember when a recession comes, which really some people say is not existent and it’s not coming, but if a recession comes, remember money is tight. And the cost to borrow money goes up, your equipment costs go up. Everything you do that involves any credit goes up. And then you’ve also got material pricing going up. Wade, what else?

[00:01:22] Wade Carpenter: Everything, inflation and everything, but you know, when things get tight, working capital gets tight, it is tougher to get my contractors a bond.

[00:01:31] Stephen Brown: Yeah. 

[00:01:31] Wade Carpenter: I wanna hear how you do that.

Lock down your financial board of directors

[00:01:33] Stephen Brown: Well, that was my point. When that thing gets tight, it’s even more important that you got your good financial board of directors: your business coach, your accountant, your lawyer, your banker, and your bonding and insurance agent. Those are your financial board of directors.

So you say why do you mention that? What does that have to do with the recession? For one thing, to recession proof your bonding program, you’re gonna need to get more timely, accurate accounting information to your bonding company. Because when people start worrying, they need to know you’re financially sound. That’s number one.

[00:02:05] Wade Carpenter: Can I say amen?

[00:02:06] Stephen Brown: Yeah.

Yeah. Yeah. Well, if you’ve got it, if you’re financially sound and you run a good company, by having those accurate up-to-date accounting information, you know what job’s been run off and you also know what backlog gross profit is in there.

That’s money in the bank, especially if you’ve been in business a while and know what you’re doing. That’s money in the bank, as far as your bond program is concerned. And that’s vital. So remember we talk about over and over again, cash is king. Cash is king. That’s always the case. 

We even had a topic of, what do you do when you have too much cash? And we’ve talked about the Profit First system of making sure that you’re not overwhelmed by too much cash, that you know exactly what its purpose is. 

The whole idea of our podcast is contractor success. And that can be measured in lots of ways. We’re kind of pithy. We say it has to do with just making profits. But contractor success could be getting your projects done, having happy employees, contributing to society. There’s a lot of things that are important to contractor success. So with the bonding company, the key to showing your success is all of these elements, and also cash.

And you think enough cash can get the job done? In today’s difficult bonding climate out there, you’re gonna see that there are just stranger things that come into play that affects your bond program. You don’t know whether your bonding company is having a good year. That’s kind of nice to know. They’re having a good year, they might be a little bit looser on their underwriting. And to recession proof your business, you have those accounting systems, you got your business coaches like Rob, that are helping you see the things that you don’t see. You can’t see the forest through the trees. 

Sometimes you get so busy, you just need help. You need a coach, you need accountant, you need your banker. You need to have a line of credit established for more than you need. And it’s not just a good old boy type letter of credit, but it is put to bed. It’s lined up, paperwork done. You have X amount of time to draw on it. You know the terms and conditions. That needs to be done. So you’ve got that. 

And then we were talking earlier about all the legal things that can pot your cash flow. And we would mention that in joint checks, our last episode. So you see what I’m saying, guys? All these elements come together in a recession.

Keep a close eye on your cash flow

[00:04:31] Wade Carpenter: One thing I wanted to point out, Rob I, guess he’s been listening to us about Profit First, because he had pretty good observation there about the Profit First system.

[00:04:40] Rob Williams: He did. He did.

[00:04:42] Stephen Brown: Well, really guys, everything we talk about that makes sense all ties in together. And if it doesn’t make sense, listeners, you are welcome to call and jump all over us. We are open for that. But we are all experts in what we do in the financial end to helping contractors. And that’s all we do.

So, we do it well, just like you do your job well. And the bonding is a people business guys, and it’s a finance business, and it’s a relationship business. And so right now with federal contracting dollars going through the roof, that money’s available. That has to be bonded. Get going, guys, if you haven’t. Get your financial board of directors in place sooner than later and get the very best you can find.

[00:05:26] Rob Williams: Yeah. And so what are some of those things that we’d be doing, Wade? I really liked that episode we had a long time ago about Cash Flow Story, and I’m actually signed up. I’m a Cash Flow Story subscriber and payer now in their program, where you really look at that working capital. It actually let me understand it a lot better. So as we’re looking at our Profit First bank account, you know, some people look at those and it’s great that the alarm bells go off, but what do you do about it?

Well, go look at your Cash Flow Story. And that’s kinda where you’ll start seeing is your inventory or in our business Work In Process report. And then you look at your Accounts Payable. And then you look at your Accounts Receivable and really start keeping an eye on those things. And the Profit First, when you start seeing those bank accounts red flags going off, that’s where I’d be going.

I mean, I guess the first thing you go is you go talk to your CPA or your CFO or something, but keeping an extra eye on those. And you may have to even not just keep an eye on it, but make sure you’ve got some agreements. How many people have not even paid attention to the days of receivables and the days of payables and all those things?

They just hadn’t even brought it up. Things have been going so good, and they’ve been growing so fast. Well, this might be when the strings start tightening.

[00:06:40] Wade Carpenter: Absolutely.

[00:06:41] Stephen Brown: Yeah, tighten up. 

[00:06:42] Rob Williams: –your contracts say? You may just pay the bill when it gets in, but you don’t know how many days you actually have.

Don’t cut back on the wrong expenses

[00:06:48] Wade Carpenter: Well, just to go back to Steven’s point about having that good board of directors or whatever you want to call them, your advisors, I think is a great point. Because number one, when things start getting tight, we start cutting back on things. Maybe you’re cutting back on accounting. and maybe you’re cutting back on attorney, are not wanting to spend the money. Well, not that I’m advocating for attorneys, but you know, they can save you if you get in the wrong situation.

[00:07:16] Rob Williams: Yeah, it’s a lot better to pay them before, a lot cheaper pay them before than it is after, so.

[00:07:22] Wade Carpenter: And I know it sounds self-serving, but your accountant, this is not the time to back off. This may be the time to invest more in your accounting and making sure that you’ve got up to date books, know how your jobs are coming out. Not six months after you finished the job, you find out how well you did. You need to know now. You need to do some of those things that Rob was talking about. Let’s look at some of the working capital things.

[00:07:45] Rob Williams: I had another conversation yesterday with another Scaling Up coach that I know, and we were talking about a contractor. And he was saying they had not been getting their invoicing done, so boy, make sure this is the time. If cash might be looming on the front end, make sure you’ve got, and you understand what that procedure is, who is doing it, and making sure that y’all are accountable and it’s actually happening.

I don’t know what, Wade, what do you usually see is a trigger just to make sure there’s some bell that’s ringing that everything got invoiced.

[00:08:19] Wade Carpenter: Yeah.

[00:08:20] Rob Williams: Or if it doesn’t get invoiced, I don’t know how that works. I don’t usually know what the controls are.

[00:08:24] Wade Carpenter: There are a lot of things that can go down, but you know, the one thing I would say, and we’re talking about keeping up with the jobs and keeping up with your accounting, but accounting essentially is history. We’re looking in the back rear view mirror. This is the time you need to be looking forward. So you need to be projecting and planning. Cash flow, taxes, and from a bond standpoint, this is about recession-proofing your bonding, this is the time to go and sit down with your CPA. And if they don’t do it this way, you probably should think about it. If we’re only thinking about taxes, then we may be wrecking our bonding capacity if we do the wrong things.

[00:08:59] Stephen Brown: That’s a very good point, Wade. It’s why they make rear view windows so small and windshields so big. You’ve heard that expression before, or if you hadn’t, it’s a great one. Looking forward, you gotta know a little bit about your history and you gotta know what your expenses are, and you’ve gotta know what your backlog gross profit is. You have to know whether you’re gonna be able to cash flow things like hiring extra employees, hiring extra accounting services, getting a business coach. But it’s kind of funny, you say, well, I spend that money and I don’t know if I can afford it right now, but if you don’t do it, then you never make any money.

Because there’s so many things that you can’t see. That’s the point. Folks are busy contracting. Let me contract. I got enough just to sell and close the contract and get it built and billed and put to bed. But get a little bit of help. You can see the forest through the trees. It’ll save you a fortune in the long run and make you a lot of money. That’s my point. And recession proofing your business, your bonding program, is all of these things. 

Push your bonding company on slightly bigger jobs

[00:10:04] Stephen Brown: And also, if you haven’t pushed your bonding company a little bit, push them a little bit, as far as some jobs. Don’t be worried if they’re a little bit bigger, your bonding underwriters know that costs have gone up all around. The main thing is to show the bonding company that I’m bidding on something that I know how to do, and this is how I plan to do it. So in this situation give your bonding agent, and encourage a three way phone call with the underwriter if bonding agent thinks you need it, and just talk it out. 

Because if you’ve worked out a good game plan, and the financing of that project, and your capacity to perform that project makes sense, they’ll go with you. And right now most bonding companies have been having pretty good years. So, they’re looking for business, they’re looking for opportunities and they know that they can’t get a new contractor unless there’s an opportunity that that contractor needs.

So now’s a good time to push that program and to make sure you’ve got cash, make sure all your systems are in place as all I have to say about that.

Get good systems and processes in place

[00:11:11] Rob Williams: And one thing I was about to say, I’m glad you just said, make sure your systems are in place. What we were talking about in our coaches meeting yesterday is how many of these contractors and people don’t actually have a list of their processes. 

So you don’t need to list every single process. It’d be like me. I used to have all these three ring binders that we never opened again, but just what are those? Like yesterday, we said, just come up with your three or four, if you haven’t started, if you don’t have that. But have those five to seven main processes that cover 80% of your business.

And we call that a PACe chart, a Process Accountability Chart. So what does that mean when you write them down? You’d think everybody has this, but they don’t. So this may seem redundant to say this, but you have your process and then write down who is accountable for it, one person. And that doesn’t mean who’s responsible for doing, but one person needs to be accountable to make sure the KPI and the end result is there. So, what is your end result, which might be cash, accounts receivables paid. But then before that one, what is your leading indicator that comes up a month beforehand and just part of that process that you can be aware that things are going, and actually I’m not even sure what the leading indicator would be on that accounts receivable thing, but that was the subject we were talking about. And people didn’t have a written process.

These are some big companies that did not have these written processes. And they don’t even have to be long and fancy, but just write a list of your five to seven processes and make sure you’ve got a leading indicator to make sure those are happening and know what your end result is. And if you don’t know any of that, contact a coach to get with you to do that. 

Because sometimes it, we were also talking about, even with me, my own procedures, it’s hard to do it for yourself. A lot of times you just need a third party, talk to your CPA, somebody outside of the bubble that can look at it in a little bit different light. We talked about, I think pretty much all of the coaches in our thing have other coaches to look at us and see, because it just takes somebody from outside to point out the real obvious things.

So anyway, that was sort of my, from a systems and processes structure, what you do for the recession and what we are already seeing in our group meeting yesterday, what some of these problems are.

Be ready to provide up-to-date financial statements

[00:13:35] Wade Carpenter: I did want to go back to our analogy that we were talking about, like looking through the rear view mirror, and then we’re talking about like projecting forward. But from a bonding standpoint in between, where are you right now? And when things get tight with the bonding, typically they wanna see some up to date financial statements or, up to date, where are you now? And if it takes, a couple of months to get that out, Stephen, you can speak to that. If they don’t have confidence in your numbers that you can pull them together and know where you are, I also think that works against you as well.

[00:14:07] Stephen Brown: It does. And it’s hard to close out your month-end. Everybody knows that, it’s hard. Especially the more projects you have going on. But like Rob was saying, the better your systems are in place, the faster you can create that information. Because as a bond underwriter, I love pushing things. If a good contractor of mine wants to push a bigger project, that gets my motor running for a number of reasons.

Number one, okay, I’m gonna submit this to the bond underwriter. Do you have that financial information? That’s gonna go a long way. And if you do, and it backs things up, it’s always good to see what that bonding underwriter will do for you. Because if they start to kind of close up and hem and haw, and the bond’s not getting approved relatively quickly, there’s a problem. And you need to realize there’s a problem and you and your bond agent need to respond to that quickly. Does that make sense?

[00:15:04] Rob Williams: It does.

[00:15:05] Stephen Brown: Well, recession-proof your bonding program, guys, just like everything else. And remember, a successful bonding company’s bonding program is the successful contractor. two go hand in hand. We’ve said that. And also Rob, on your systems, folks, we have a podcast on checklists. So you may wonder where all these topics come from. But it all kind of ties together, doesn’t it guys?

[00:15:29] Rob Williams: It does. It comes from you guys who listen to us, Because we are here for the success of our contractors at the Contractor success forum. Comes from you guys, you’ve got questions, let us know what you wanna talk about. Maybe you don’t even know what it is that we wanna talk about. We’d love to know what your issues and problems are, so maybe we can think of what you would need to hear. So you don’t actually have to ask us what a question about the solution. Maybe say you don’t know what to do about it. 

What are your biggest issues right now? I’m hearing some cash flow things already, which we’ve been expecting that. And I think it’s already hitting a little bit. So what are your biggest issues? And getting people. Just different things like that. Those are different examples that we wanna hear. What are your biggest issues right now? How can we be helpful to you, the contractor?

[00:16:19] Stephen Brown: Let us know. We want to help.

[00:16:22] Rob Williams: All right. Well, thanks again. And you guys listen to us, listen to it’s Wade Carpenter, Stephen Brown, and Rob Williams here. Contractor Success Forum dot com if you wanna see more information. And go hit us up on YouTube. You hear our lovely flowing voices all the time. You may not see these beautiful faces.

[00:16:41] Stephen Brown: I don’t know, Rob.

[00:16:42] Wade Carpenter: Wanna see these beautiful 

[00:16:43] Rob Williams: Yeah, faces.

[00:16:45] Stephen Brown: Man, that’s–

[00:16:47] Rob Williams: –saying, man, I wish this guy would just end this episode.

What is he doing?

[00:16:51] Stephen Brown: Well, like us, everybody likes to be liked. Don’t you?

[00:16:54] Rob Williams: Yep. Yep. Like Watch us. Anyway, thanks. We just thought we’d let you know we’re out there. So tune in to the next podcast or YouTube episode of the Contractor Success Forum. We’ll see you.

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