As the economy continues to grow and the construction labor market continues to tighten, many of your contractor clients will be faced with an exciting question.
Should They Try to Grow Their Business?
As agents, how your clients grow their business will impact your relationship with them in the long-term. A growing business means more potential for agents and surety bond providers, but also adds unique challenges that agents and their clients will need to face together.
Before your contractor clients grow their business, here are five questions they should ask as they assess whether or not their business is ready to grow.
1. Do They Have a Plan?
For your clients, saying that they want to grow their business and actually growing it are two different things. Growth can be rewarding, but it can also be challenging. This is why it’s important that they create a business plan.
If their goal is to book more projects at the same budget level or to take on projects with a larger budget, they should ask themselves if they:
- Have the financial profile to get larger bonds?
- Have the cash flow to cover initial costs when their bid is accepted?
- Have the back-office support to manage these projects?
Before they attempt to expand, you may want to help them take a hard look at their finances and back-office to determine the answer. Once they’ve done that, they should develop a realistic business plan that will allow them to grow in a way that doesn’t hurt their credit rating or puts undue stress on their finances.
Before making any decisions, you should also encourage them to talk to their bond provider, banker, and accountant.
2. Can They Get the Bonds They Need?
More projects (or larger projects) mean that your contractor clients may need to increase their surety bonding line. If they are dealing with debt or credit issues, this may stretch the limits of their bonding line. It may also mean that your contractor clients will need to be bonded in the non-standard market.
In these cases, they may need to pay a high bond premium or the bonding agency may require collateral as a condition of providing the bond.
3. Do They Have Sufficient Cash Flow?
Growing a business requires investment. Whether its new equipment, paying more team members or hiring more staff, every growth plan requires capital. Once your contractor clients get bonded for a project, they’ll also need additional capital to cover the initial expenses.
Even if their business is profitable on paper, if they’re carrying too much debt, they run the risk of running out of money when they need it most.
Improving their cash flow may also be tied to how they manage their finances. The following are just a few factors that can affect a contractor client’s profits, and by extension, their cash flow.
- Collecting on Accounts / Receivable
- Making payments to vendors on time to avoid penalties
- Taking advantage of early payment discounts
- Managing change orders
Having an effective project accounting team can make all the difference in these areas as they plan to grow their business.
4. Are They Licensed and Certified?
Project owners are savvier than ever before, and with 24/7 access to the internet, they have more information about your clients and their competitors available with a click or a swipe.
This is why it’s important that your clients make sure that their business is licensed and/or registered, and that they keep their licenses up to date.
It’s also a good idea for them to get certified. More and more project owners want their projects to be energy efficient, not just for the environmental benefits, but also because it can save on their utility bills in the future. Getting LEED certified or being a Home Energy Rating System (HERS) rater can show project owners that your clients have the know how they are looking for.
5. Do They Have a Marketing Plan
For your clients, growing their business is great, but if no one knows that they’re ready, then they won’t get the projects they need to grow. This is why your clients may need to invest in marketing their business as a part of their growth plan.
Marketing can take many forms. It can include upgrading print materials, building or updating their website to entice and capture more leads, traditional print and billboard advertising, digital marketing, personal outreach to general contractors or taking advantage of networking opportunities to grow their customer base.
As an agent, you can make recommendations and connect your clients with design and marketing professionals in your area to help them get started.
Grow Their Business with Cinium
Having your clients work with Cinium can help. Our Contractor Credit Program is designed to fully assess a contractor’s potential, both on the job site and in the back office.
Our team of underwriting experts can determine a bonding line that works for your client’s business, and unlike other companies that bond in the non-standard market, we don’t require collateral. In addition, our Project Accounting Service can help them to better organize and manage their back office, and our Requisition Cash Advance service can help them to better manage their cash flow issues so that they have the funds they need to get the job done.
In our next article, we’ll review some of the personal consideration that your clients will want to take into account as they think about growing their business.
Looking to take advantage of Cinium’s Contractor Credit Program? Schedule a free consultation today, or call (855) 4-CINIUM.
In our next article, we’ll review some of the personal consideration that you’ll want to take into account as you think about growing your business.