WHAT CURRENT RATIO SHOULD A COMMERCIAL SUBCONTRACTOR HIT?
CFMA's 2023 surety prequalification guidance sets the minimum standard at a current ratio of 1.15 to 1.20 and puts the construction industry mean at 1.7. Above 1.20 reads as active debt management, and closer to 1.50 reads as strong trade partner relationships rather than merely acceptable liquidity. Most commercial subcontractors sit between 0.9x and 1.2x. The math is current assets divided by current liabilities. The fix is structural rather than cosmetic, because retainage, billings, and AR concentration all distort the number on a sub's balance sheet in ways generic finance advice doesn't catch.
The construction twist is retainage. A $5M civil sub holding 10% retainage has roughly $500K sitting in a retainage receivable, and whether that counts as a current asset depends on when the contract releases it. Release at substantial completion eight months out keeps it current. Release eighteen months out on a phased job makes it long term, and the correct treatment is to reclassify it. Most subs leave all of it in current, which inflates the ratio and produces a false read right up until the bonding conversation where the underwriter does the reclassification for them.
WHAT IT MEANS.
Current ratio is current assets divided by current liabilities.
Current assets are anything that becomes cash within 12 months: cash in the bank, accounts receivable, retainage, billings in excess of costs, and any inventory you carry. Current liabilities are anything you owe in the next 12 months: accounts payable, accrued payroll, the current portion of long term debt, lines of credit drawn, and overbillings. The outside standard is published. The Construction Financial Management Association's 2023 surety prequalification guidance, at https://cfma.org/articles/mitigating-risk-and-uncertainty-surety-prequalification-for-contractors, sets a minimum standard of 1.15 to 1.20, reports a construction industry mean of 1.7, treats anything above 1.20 as a sign of active debt management, and puts a ratio closer to 1.50 in the range that suggests strong trade partner relationships. CFMA also states plainly that there's no perfect formula and that every underwriter measures risk differently. SPM's own standard is separate and tighter: the CONTROL Book band of 1.3 to 2.0.
THE REAL NUMBER IS OFTEN 0.9X TO 1.2X.
AR concentration that's not really collectible
A $3M sub has $480K in AR and $180K of it's past 90 days from a GC who is fighting a change order. That receivable is still on the books at full value, but the realistic collection on it's 60 cents on the dollar. The ratio assumes 100%, so the number on the internal balance sheet reads better than the number a bank would use.
Underbillings booked as if they bill next month
Costs incurred in excess of billings is a current asset, and it's also a sign the sub is funding the project ahead of pay app submission. If a billing dispute is brewing, that underbilling may not turn into cash for 90 to 180 days. It stays current on the books while it's not current in function, and the ratio takes the books at their word.
Overhead absorbed into job costs incorrectly
Subs who don't properly burden labor end up with overhead sitting in current assets as misallocated job cost. When the job costing gets rebuilt, the overhead reclassifies where it belongs and current assets drop. The ratio was never as strong as the report said it was.
Lines of credit excluded from current liabilities
A $200K line of credit drawn against current operations is a current liability. Some bookkeepers park it as long term debt instead, which understates current liabilities and flatters the ratio. Cleaning up that one entry moves the number immediately, in the honest direction.
WHAT IT LOOKS LIKE IN DOLLARS.
Below 1.0x means near term obligations exceed near term resources, and you're technically insolvent on a current period basis. CFMA's 2023 surety prequalification guidance puts the minimum standard at 1.15 to 1.20, so anything under 1.15 sits below the published floor. Above 1.20 reads as active debt management, 1.7 is the construction industry mean, and closer to 1.50 is where an underwriter reads strong trade partner relationships rather than adequate liquidity. A sub at 1.3 is above the floor and short of strong, which is a position he can do something about. SPM's own standard, from the CONTROL Book, is a band of 1.3 to 2.0, and we hold clients inside it by month 12 of the engagement.
Civil subs at $5M to $10M typically run a current ratio of 1.2x to 1.6x. Electrical subs at the same size run 1.4x to 1.8x because they collect faster. SWPPP and erosion control subs run 1.1x to 1.4x because of the mobilization heavy job profile.
The ratio is half the question. Surety1's 2025 performance bond underwriting requirements, at https://surety1.com/performance-bond-underwriting-requirments/, put adjusted working capital at 5 to 10 percent of the current cost to complete across all open jobs, and net worth at 10 to 20 percent of that same cost to complete. The denominator is open backlog rather than annual revenue, so a sub with $4M of cost left to spend needs $200K to $400K of working capital and $400K to $800K of net worth behind it. SPM's own working capital standard, 10 to 15 percent of annual revenue aiming at 13, answers a different question and the two figures should be run side by side rather than substituted for each other.
Reclassifying retainage and the line of credit correctly often moves the ratio 0.2x to 0.4x in a single afternoon. Every $50K of AR collected is a direct add to current assets, and if it pays down a vendor balance it improves both halves of the ratio at once. A $4M sub that moves from random billing to disciplined monthly billing collects 14 to 21 days faster on average.
THREE CORRECTIONS THAT MOVE THE NUMBER.
AR over 60 days has to come in. Every $50K collected is a direct add to current assets, and if it pays down a current liability like a vendor balance it counts twice on the ratio. Most subs treat collections as a side activity, and it's the single fastest way to move the number. We have recovered over $2.1M in client AR since 2023.
Retainage on jobs more than 12 months from release is long term. A line of credit drawn against operations is current. This is a one time bookkeeping cleanup that often moves the ratio 0.2x to 0.4x in a single afternoon, and doing it before a bonding or banking conversation prevents an awkward renegotiation later.
Pay apps that go out late leave costs sitting on the balance sheet as underbillings instead of as cash. Bill on the 25th of every month, follow up on day 10 if there's no response, and file the lien notice on day 40. That rhythm gets built into the engagement rather than left to whoever remembers, because most subs bill when they remember to and not on a schedule.
FLAT MONTHLY FEE. NO SURPRISES.
Three tiers, priced by your trailing twelve month revenue. Which one you're in depends on how much of the work you want off your desk. No hourly billing, no payroll, and no add-ons.
| Last 12 months revenue | Monthly fee |
|---|---|
| Up to $1M | $1,900 to $2,900 |
| $1M to $3.5M | $2,600 to $3,900 |
| $3.5M to $6.5M | $3,800 to $5,700 |
| $6.5M to $9.5M | $5,100 to $7,100 |
| $9.5M to $12.5M | $6,100 to $8,500 |
| $12.5M to $15.5M | $7,400 to $11,000 |
| $15.5M to $18.5M | $9,400 to $13,500 |
| $18.5M+ | Quoted individually |
Range reflects the three tiers below. Which one you're in depends on how much of the work you want off your desk. No payroll. No hidden line items.
You stop guessing.
You get the CFO work. Job costing built against the way you estimate, a 13 week cash forecast, monthly WIP, and a meeting every month that ends in decisions rather than a report.
Your bookkeeper keeps doing the books.
You stop touching the books.
Everything in Core, and we run the bookkeeping and the controllership as well. Nobody in your office is answering coding questions or chasing a reconciliation at month end.
We do the books. No payroll.
Every job shows its margin while it's still running.
Everything in Executive, plus the job costing and WIP platform set up, loaded with your cost codes, and managed for you every month. You never have to learn it.
We do the job costing.
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