Everybody on this side of the business knows that what we do is hard work. On top of the grunt side of it, there’s the financial part of the world to stress and worry over. Running a business as a construction sub-contractor can be a complicated, and arduous process. We’d have far less worries if we knew how to reduce the cost of surety bond prices. Here are 5 ways to reduce those costs.
- Bond Pricing
Knowing how surety bonds are priced is the first step for reducing the cost of them. They are priced using a percentage. The percentage used is the total amount of the required bond (called a premium) – on average, the percentage is between 1-10%. This premium is a representation of your financial strength; i.e your ability to make true on your obligations. However, there are many different types of bonds, state license bonds, local contractor license bonds, auto bonds, etc. Calculating an exact premium is difficult as it depends on the type of surety bond you’re looking for.
- Improve Working Capital
Without a strong working capital, you won’t be offered discounted surety bond rates. Why would anyone invest in a company that doesn’t boost their working capital? It’s a sure-fire way to know that you’ll be getting your investment/money back. Working capital is the foundation of using your assets to pay off liabilities. To find out the state of your working capital, calculate the following:
- List your current assets
- List your current liabilities
- Subtract your liabilities from your current assets
If your liabilities cost more than what your assets can produce, you will have a harder time of things. You can improve your capital by meeting debt obligations, resolving customer-employee disputes, taking advantage of tax incentives, and keeping financial statements up-to-date.
- Personal Credit
Getting your credit report is easy: simply go online (it’s also free). Don’t hesitate to do this as soon as possible, because surety bond percentages depend on your personal credit history. Your history shows creditors, lenders and other CC companies if you pose a risk or not. This means if you’ve missed payments, filed bankruptcy, or had your account send to collections agencies, your personal credit history may not be as healthy as you thought.
- Leave Equity in Your Company
It’d be a wise move for you to, each year, leave some equity in your company. Although this decision may bite you come tax season, it is best for the price of your bond. Even if it is a small growth, surety companies favor organizations that add to their equity position. Therefore, ensuring a minimum amount of equity benefits your organization. Know that
- Who Do You Owe?
Creating and managing up-to-date records keeps businesses afloat, no matter the industry or organization. Of those records, one category must involve finances. Specifically, how much money the business owes (and to whom), and vice versa. In terms of outstanding invoices, knowing which customer owes which monetary amount makes applying for surety bonds a breeze. This is because having accurate, timely information lowers your surety bond costs.
Conclusion
Keeping your surety bond prices lower, in the future, is easy – once you know what to do. In the future, however, do your best to reduce the number of claims which chip away at your opportunities for receiving affordable surety bonds. Another thing you can do for yourself is to fulfill the contract’s requirements for each customer. Do this on a consistent basis and your costs will be lowered in no time.
