Tennessee Business Organization & Financial Statements
Tennessee sizes a contractor's monetary limit from its financial statement, so the numbers on the balance sheet matter. This chapter covers the required statement, net worth, and working capital.
The required financial statement
The Board sizes the monetary limit from the contractor's financial statement. When the requested limit exceeds $1,500,000, a reviewed or audited financial statement prepared by a CPA is required; lower limits may be supported by a compiled statement. The larger the limit, the higher the assurance the Board demands.
Net worth
Net worth (owner's equity) equals total assets minus total liabilities. A balance sheet showing $900,000 in assets and $520,000 in liabilities gives a net worth of $380,000. Because the monetary limit is based partly on net worth, an accurate balance sheet directly affects how large a project the contractor may take.
Working capital
Working capital equals current assets minus current liabilities, and it measures the short-term liquidity a contractor can put toward a job. Tennessee sets the monetary limit at the lesser of ten times net worth or ten times working capital, so both figures must be strong to support a large limit.