Advice on executing a work-in-progress true-up? - Searchfunder

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by a searcher
in Boston, MA, USA

9mos ago

Advice on executing a work-in-progress true-up?

Hi all - I'm (fingers crossed) near closing on a deal which will require a work in progress true-up. For context: this is an asset sale, I'm purchasing without working capital (bringing my own / baked into my loan), jobs take 12+ weeks to finish, 50% deposit is taken up front and the remainder after completion, and 100+ jobs will be in progress at close. Our LOI states we will conduct a true up within 3 days of closing. We've already negotiated the methodology for allocating revenue from jobs based on % completion by breaking down jobs into milestones and assigning a mutually agreeable weight to each. For example, if tasks 1-3 on a job were complete pre-close, this translates to 40% completion and thus the sellers get 40% of the jobs revenue. Any advice on how to execute this in practice? Tactically, what is the easiest way to distribute funds from these jobs? Thanks!

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reply by a searcher 9mos ago
from United States Military Academy in Colorado Springs, CO, USA

I just did an in-depth WIP true up in a construction deal. I closed in January and then spent the next several months passing over Seller A/R (I did a stock sale and retained all existing corporate accounts). I would be happy to walk you through my methodology and also provide a copy of my WIP from closing day. Shoot me an email at redacted

reply by an intermediary 9mos ago
from Babson College in Boston, MA, USA

Thanks for tag Luke. In practice, doing this true up really takes more than 3 days to finalize and perform a look back when done correctly from buyers risk perspective. The most common problem with these types of jobs is what’s being used to estimate completion could be wildly incorrect resulting in the buyer absorbing losses. For example, collected 50% of revenue and based on job cost estimates at close seller says it’s 50% complete resulting in a net $0 adjustment. In reality, cost estimates are significantly understated and there were actually more costs to complete so the POC was more like 30%. That 20% delta in revenue hits your post acquisition profits and erases profit if job is 20% in total. A way to avoid that from happening is if there could be a true up tied to some deferred consideration or earn out payments. 120 days is ideal and should provide adequate visibility into how the jobs performed and what deposits belong to buyer vs seller. Happy to chat further if you dm me. Have 20 yrs of POC accounting and deal experience.

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