By Matt Ashcroft, EHD Commercial Producer and Surety Expert
An increasing number of construction company owners are planning to retire over the next few years. For many, the focus of succession planning revolves around family legacy and selling the business. While those priorities are certainly important, it’s important to ensure that your company’s surety bond program is part of the plan.
Why Do Sureties Care About Succession Planning?
Surety carriers underwrite the people responsible for completing bonded projects, which means that transitions in leadership or ownership can influence a Surety’s confidence in future performance. If your company is heavily dependent upon a sole leader, this creates a “key person” risk. If that key person were to suddenly depart without a plan in place, a Surety carrier may grow apprehensive towards the completion of outstanding projects and operational oversight. Fortunately, there are several strategies you can engage in to solve this problem before it starts. To evaluate how a leadership transition may affect future project performance, Sureties typically focus on three key areas.
The 3 Things Sureties Look for In a Transition:
- Establish Leadership Depth:
- Identify your successors
- Employ experienced Project Managers and Operations staff.
- Display Relationship Continuity – When you create a succession plan for your surety program, make sure you display a maintained relationship with:
- Banks
- CPAs
- Key Customers
- Demonstrate Financial Stability:
- Maintain strong working capital, stockholders’ equity and cash flow.
- Document how ownership transfers will be financed.
- Minimize disruption to financial reporting and business operations.
- Share updated financial projections with your surety partner.
How Contractors Can Strengthen Their Position Before Officially Retiring
- Start early, ideally a few years before your official retirement.
- Introduce your successors to the surety team and vet them carefully.
- Develop a written transition strategy.
- Discuss major ownership changes with your Surety Advisor.
- Maintain strong financial reporting during the transition.
Final Thoughts
A succession plan is, at its core, a business continuity strategy. The earlier you involve your surety partner in the planning process, the more confidence they can develop in your future leadership team, operational structure, and financial stability.
By demonstrating leadership depth, maintaining strong business relationships, and implementing a clear transition plan, you can help preserve bonding capacity while positioning your company for long-term success.
If you’re considering retirement or a future ownership transition and would like guidance on how it may affect your bonding program, contact our team today.
Frequently Asked Questions
Does succession planning affect bonding capacity?
Yes. Sureties evaluate leadership continuity, management experience, and financial stability when determining bonding support.
Why do Sureties care about ownership transitions?
Sureties guarantee project completion and want confidence that the company can continue to operate successfully after a leadership change.
When should contractors discuss succession planning with their Surety?
Ideally, several years before a planned transition so that the Surety can understand your succession strategy and build confidence in the next generation of leadership.