THE PROBLEM · FIXED BY STEP 07

Your bonding capacity stopped growing

The surety looks at working capital and equity. Both come from a clean close, and yours happens once a year in March.

DIRECT ANSWER

A surety underwrites your bonding capacity off financial statements it trusts. Statements that come in late or without a WIP schedule read as risk, no matter how well the work went in the field. Your ceiling is usually an accounting ceiling rather than a limit on what your crews can build. Fix the close and the capacity question changes.

WHAT TO DO

Three moves, in order

STEP 01

Produce a monthly WIP schedule and a close your surety can read.

STEP 02

Keep equity in the business through the growth years.

STEP 03

Give the surety the same package every month, on the same date, without being asked.

THE SCALE OF TRUST

Seven layers, and what each one is worth

No underwriter just gives you capacity. You earn it a layer at a time, and each one answers a question the layer under it couldn’t.

Layer	Largest single job	Aggregate program
01 Internal financials	$1M	$2M
02 Projects at size	$2M	$4M
03 WIP report	$3M	$6M
04 Job costing	$4M	$8M
05 Labor allocation	$5M	$10M
06 A CFO	$6M	$12M
07 Reviewed financials	$7M	$14M

A surety reads the whole business. There’s no formula. There are more than seven layers in real life, and these are the ones that move the answer most. Figures are an example for a $14.2 million contractor.

What each layer proves

Every rung answers a question the one under it couldn’t.

Layer	What it proves to them
01 Internal financials	You know what you made last year. It's your word, and nothing else is holding it up.
02 Projects at size	You've finished work this size before. That's character and capability, not capital.
03 WIP report	You know where every open job is today, not where it was at year end.
04 Job costing	The WIP is built from coded cost, not a number somebody typed into a spreadsheet.
05 Labor allocation	You know which phase and which crew moved the job. It's the hardest layer to fake.
06 A CFO	Somebody reads all of it together and decides what changes next. They're buying management, not just records.
07 Reviewed financials	A CPA tests the controls and signs a higher level of assurance. Figure $40,000 to $80,000, and you're paying it again every year, or every third at the outside.

Layer five is the one almost no one has, and it separates a contractor who says he knows his costs from one who can show it by phase.

Job costing, month 3 of a 12 month job

Current contract $2,526,500. Projected gross margin 16.8% against 17.0% at bid. Trending $38,400 over at 26% complete, and we know which codes.

Cost code	% comp	Revised budget	Committed	Actual	Variance
01.01.00 Rock	40%	196,000	128,000	84,600	(16,600)
01.02.00 PVC pipe	18%	212,500	171,600	38,200	2,700
02.04.00 Boring	0%	145,000	145,000	0	0
03.01.00 Owned equipment	28%	176,000	131,900	52,400	(8,300)
03.02.00 Rented equipment	54%	34,000	24,800	28,600	(19,400)
03.04.00 Fuel	31%	58,000	42,900	19,700	(4,600)
06.03.00 Excavation	39%	289,000	186,200	118,400	(15,600)
08.02.00 Foreman	25%	102,000	76,400	26,100	(500)
Total, all 64 cost codes	26%	2,064,900	1,564,400	538,900	(38,400)

Committed is work already under subcontract plus material we still have to buy. Boring is committed in full with nothing spent yet. Without that column every line reads under budget until the last truck leaves.

Labor, split by the phase the crew was in

Net labor is $42,200 over, and grading and concrete haven’t turned a shovel yet.

Cost code	% comp	Revised budget	Committed	Actual	Variance
06.01.00 Erosion control	100%	42,000	0	38,900	3,100
06.02.00 Demolition and clearing	100%	36,000	0	41,200	(5,200)
06.03.00 Excavation	100%	289,000	0	318,600	(29,600)
06.04.00 Storm sewer	80%	152,000	30,200	118,600	3,200
06.05.00 Water utilities	62%	118,000	46,800	75,500	(4,300)
06.06.00 Sanitary sewer	46%	96,000	50,600	43,200	2,200
06.07.00 Grading	0%	82,000	82,000	0	0
06.08.00 Concrete	0%	64,000	64,000	0	0
06.12.00 Trucking and haul off	37%	64,000	44,900	26,400	(7,300)
06.99.00 Misc labor	60%	12,000	6,500	9,800	(4,300)
Total labor	67%	955,000	325,000	672,200	(42,200)

Without the committed column those two rows would read $146,000 under budget. Committed is what keeps a job from looking profitable right up until the last crew leaves.

Three years of getting better at it

The line is confidence in the business, meaning how much of it somebody outside your company can believe. It starts near half, because that half is just your word, and it doesn’t get to 95 on a software purchase.

50% todayYear 1, prove itYear 2, document itYear 3, review it · 95%

Month 0 Cost codes rebuilt to match the bid
Month 6 A monthly WIP that ties to the ledger
Month 12 Labor allocated by phase
Month 18 A CFO in the monthly cadence
Month 24 Two years, no fade
Month 36 Reviewed financials

Fifty percent is your word. Ninety five percent is a record somebody else can check. Each layer goes in when the numbers underneath are good enough to hold it.

Swipe or use the arrows. All five panels are on the page whichever way you read it.

THE STEP

Step 07: Monthly cadence

Weekly bookkeeping, cost to complete, and one CEO report, on the same days every month.

CFOS-07 · CHAPTER 7

The monthly close that takes a contractor 5 hours

Read the step that fixes this, what it depends on, and what it changes downstream.

DIAGNOSTIC

Find your numbers

Pick your trade and revenue band. Get your targets, your shortfall, and the step order that closes it.

SYSTEM HUB

All 8 steps in sequence

What each step depends on, what it feeds, and why the order counts for more than the speed.

SAME STEP

Other things that go wrong

CFOS-03

You're bidding below your own overhead

If the overhead percentage in your estimating template is lower than what you actually run, every job you win loses money before a single hour is worked.

CFOS-03

Your overhead rate has not been updated in years

The rate in your bid sheet was right once. Revenue doubled, you hired two PMs and a fleet, and the rate never got revisited.

CFOS-02

Your equipment is eating the margin

The machine is paid for, so the jobs use it at no charge. Then the transmission goes and the year is gone.

QUESTIONS

What owners ask

How to increase bonding capacity subcontractor?

The surety looks at working capital and equity. Both come from a clean close, and yours happens once a year in March. A surety underwrites your bonding capacity off financial statements it trusts. Statements that come in late or without a WIP schedule read as risk, no matter how well the work went in the field. Your ceiling is usually an accounting ceiling rather than a limit on what your crews can build. Fix the close and the capacity question changes.

Which part of the system fixes this?

The step is number 07, monthly cadence. Weekly bookkeeping, cost to complete, and one CEO report, on the same days every month. It's drawn from chapter 7 of CONTROL: The Construction Financial Operating System.

Is this normal for my trade?

Across the 48 trades that publish a figure, net profit at $1M–$5M averages 7% before taxes. If you're well under that and this page describes your month, the two are usually the same story. The published average tells you where the pack is, and your own job costing tells you where you are, which is the number that pays payroll.

Where do I start?

Produce a monthly WIP schedule and a close your surety can read.

Can I fix this without touching anything else?

You can try, and it doesn't hold. Step 07 depends on step 03, overhead calculation and step 04, estimating system and step 05, software and bookkeeping alignment and step 06, project management. Install it ahead of those and it produces numbers the field won't trust, which is worse than the problem you started with.

AUTHOR

JOSH LUEBKER

MASTER ELECTRICIAN · 150+ PROJECTS · $2.1B+ MANAGED

Wrote CONTROL, the 8 step system behind these figures. More about the author.