THE SUBCONTRACTOR BALANCE SHEET EXPLAINED.
A subcontractor balance sheet shows what the business owns, owes, and is worth at a single point in time. The lines that matter most for a sub are working capital, retention receivable, and under or overbillings, because bonding companies and lenders read those three first to decide how much risk they will extend to you.
Most subcontractor owners can read a profit and loss statement and never look at the balance sheet. That is backwards. The P&L tells you whether last month made money. The balance sheet tells a bonding company and a bank whether your business can be trusted with bigger work and more credit, and it is the document that decides your bonding line and your borrowing capacity. A few lines carry almost all the weight: working capital, retention receivable, and the under or overbillings that reveal whether you are financing your customers or they are financing you. This page explains what a balance sheet is, the lines that matter for a subcontractor, and what good looks like.
WHAT A BALANCE SHEET IS.
A balance sheet is a statement of a company’s assets, liabilities, and equity at a single point in time. Assets are what you own, cash, receivables, equipment. Liabilities are what you owe, payables, loans, lines of credit. Equity is what is left, the owner’s stake. Assets always equal liabilities plus equity; that is why it balances.
The income statement covers a span of time and answers whether the work made money. The balance sheet is a snapshot and answers whether the business is sound. For a subcontractor seeking bonding or credit, the snapshot is the one that matters.
WHAT BONDING AND LENDERS READ FIRST.
Current assets minus current liabilities.
Working capital is the cash and near-cash you have to run the business after covering what is due soon. Bonding companies size your single-job and aggregate limits largely off this number; a common rule of thumb is that bonding capacity tracks roughly ten to twenty times working capital. Thin working capital caps the size of work you can take, no matter how good your margins are.
The cash held back until closeout.
Retention is money you earned and cannot collect yet, often 5% to 10% of every job, held until final completion. On the balance sheet it should sit as its own receivable line, not buried in general AR. Lenders and bonding agents want to see it tracked, because untracked retention is the most commonly forgotten cash a subcontractor is owed.
Are you financing the GC, or are they financing you?
Underbillings mean you have done work you have not billed, so you are financing the customer. Overbillings mean you have billed ahead of cost, so the customer is financing you. A healthy sub runs slightly overbilled. Heavy underbillings on the balance sheet are a red flag that profit fade or billing lag is draining cash.
THE TARGETS TO WORK TOWARD.
Strong subcontractor balance sheets share a pattern. These are the markers bonding and lenders reward:
THE BALANCE SHEET OPENS THE DOORS.
Margins win individual jobs. The balance sheet decides how big the jobs can get and how much credit stands behind them. A subcontractor with clean books and strong working capital gets the bonding line and the loan; one with messy books and thin capital gets neither, regardless of how the work performed.
The Construction CFO builds the balance sheet that bonding companies and lenders trust, tracking retention, fixing billing position, and growing working capital, as part of CFOS for subcontractors doing $1M to $12M.
FREQUENTLY ASKED.
