Assess Your Cash Flow with a Financial Stress Test

Cash flow can be one of the biggest challenges for contractors. Large projects fuel growth, but they also can cause a cash-flow crunch. A Financial Stress Test can be a powerful way to help gain perspective on your future cash-flow risks before committing to new projects. The conversation with an agent and a surety underwriter can help a contractor evaluate scenarios to make strategic business decisions.

Here's what you need to know about Travelers’ Financial Stress Test.

What is a Financial Stress Test?

A Financial Stress Test is an analysis of scenarios impacting cash flow using a specific set of data to identify risks to a contractor’s business. The goal is to offer insight through a conversation that can help a contractor decide about pursuing new projects so they can grow in a sustainable way and avoid missteps.

Travelers’ surety underwriters can help contractors anticipate future cash-flow needs and understand the potential risk they would be accepting.

The type of complex analysis included in a Financial Stress Test aims to mitigate future issues before they occur. In turn, it can help improve the financial health of the construction company.

How does a Financial Stress Test work?

A Financial Stress Test considers a company’s work in progress, key financial metrics and past performance. It uses detailed underwriting data combined with real project data. This includes a balance sheet and an income statement to calculate cash-flow projections based on the existing backlog of work.

A Financial Stress Test incorporates variables to illustrate how projections can evolve. The variables can include:

• Payment terms
• Retainage
• Material and equipment purchases
• Slow receivables
• Profit fades or gains

Think of a Financial Stress Test as a type of preparedness planning. It can help a contractor avoid being blindsided by risks that could occur down the road.

That’s where the value of the right relationship with your surety bond provider brings a great benefit. Having the 'outside-in' perspective, a partner who will ask the right questions, and tools to help evaluate a range of outcomes can help improve decision-making. The goal is to help contractors thoroughly evaluate the risk of that next big opportunity so that they can grow their business with confidence.

Jacob Fulmer, Chief Underwriting Officer, National Accounts

Leverage your surety bond provider relationship beyond the bond

With Travelers Construction Surety, the right people and the right services create great relationships.

If you’re ready to go beyond the bond, call your Travelers agent for more details on Travelers’ value-added services and discover how they can help your business succeed.